Selling your home for the first time is scary. You see the expenses and think how can you do this? San Diego real estate commission seems high, yet it's the same around the country.
There's a reason realtors charge commission. They get the job done. They sell your house for more than you could get on your own and they market it beyond any homeowner's capabilities.
It sounds crazy to pay to sell your home, but it's a service and one you'll want to pay for.
Even though you thought you were done paying closing costs when you bought your home, there are fees sellers pay to transfer their home to someone else.
Since it's such a large investment, it's important that you have the right people by your side, which includes a great real estate agent.
In this guide, we'll discuss how much the real estate commission is, who pays it, and how.
Let's get the worst news out of the way.
It will cost you 6% for real estate commissions. If you sell your home for $400,000, that means $24,000.
It sounds like a lot, but if you sold on your own, you probably wouldn't get close to the $400,000 you wanted for the home. According to NAR, the average for-sale-by-owner home sold for $200,000 (nationwide) in 2018 and the average home sold by a real estate agent sold for $280,000. The difference more than makes up for the commission.
If you want that full $400,000 for your home - you want to pay the top real estate agent and that means 6% commission in most cases.
The seller pays the real estate commission. But there's good news.
You work it into the sales price. So even though 6% sounds unaffordable - it's not coming out of your pocket. If you get $400,000 for your home, $24,000 comes off the top. You never had the money in your pocket, so it's not like you are paying it - it's just coming off your profits.
You won't ever see it, cut a check for it, or otherwise be responsible for it. The money comes right out of the sales proceeds and gets paid directly to the real estate broker.
Some say the buyer pays the real estate commission and it may seem true. It depends on how you look at it. Yes, the buyer pays the home's sales price, but ultimately, the commission comes out of the seller's profits. The buyer pays it in the sales price.
Selling agents don't keep the entire commission. First, they split the full commission with the buyer's agent. Each agent has a different agreement, but most split it 50/50 unless otherwise agreed. In other words, the buyer's agent gets 3% of the sale, as does the seller's agent.
Our $24,000 example is now $12,000 in the seller's pocket - but the entire amount doesn't stay with the seller.
Selling (or listing) agents have expenses they pay out of the commission including:
Real estate agents cover numerous fees that you never even know about unless you ask. It's their job to market and sell your home, and that costs money.
There's a lot of work that goes on behind the scenes. Even though it seems like you only spend a few hours face-to-face (or Zoom-to-Zoom today) with an agent, he/she does A LOT behind the scenes.
Before they meet with you, they'll do a comparative market analysis. They need to know how much your home is worth based on the values in the area so they know about how much you can ask for the home.
For example, if homes in the area are selling for $500,000, but you wanted to sell for $700,000, the agent would know that's out of the ballpark and can show you why.
He/she does this work before you agree to work with him/her.
Once you sign with an agent, the real work begins. Agents get to work marketing your home. They'll do some or all of the following:
You think selling FSBO saves you money, right? You aren't paying real estate commissions, so you get more money in your pocket.
First, you'll likely sell the home for less than a real estate agent could get. Plus, no one ‘has your back.' How do you know the price the buyer suggests is a good one? How do you know you're not leaving money on the table?
Selling for less means pocketing less money even after you pay the commissions.
The 6% commission does a lot for sellers:
You know you're pricing the home right based on the real estate agent's CMA
You'll get professional marketing including professional photographs, staging advice, and incredible networking opportunities
You'll have someone on your side, protecting your interest in the home and ensuring you don't get taken advantage of
It seems that buyer's agents should show the houses that meet their clients' needs, and they do. But there's often incentive to show the homes they know they'll get 50% of the commission (3%). Buyer's agents are in this to make money just like selling agents and they work hard for it too.
On paper, it looks like buyers don't pay real estate commissions. In hindsight, they do ‘sort of' pay them, though. They pay them in the home's sales price. Because homes sold by a real estate agent often sell for a higher price, buyers pay the higher price for that real estate agent service.
Buyers don't pay anything out of their pocket (and neither do sellers). The commission comes out of the proceeds of selling the home.
While the average San Diego real estate commission is 6%, anyone could negotiate it. If you don't want to pay 6%, you may ask agents for a lower price. They may agree, but they may also offer fewer services because of it.
Think about what you want out of the sale and make sure you'll get those services for the price you'll pay. You may rethink negotiating the 6% rate when you realize the vast number of hours agents work behind the scenes.
The closing agent handles disbursing the funds at the closing. You (the seller) don't have to worry about anything. The closing agent sends funds to both real estate brokerages, who are then responsible for paying the agents based on their agreement.
If you want the job done right, you have to pay for it, right? This is definitely true about selling homes. It's not an easy job as there are thousands of other homes for sale out there. If you want to be competitive, and show buyers why they should buy your house, you may want to use a top-selling agent, who may charge more, but be worth it in the end.
Selling a home is hard work. Even though you think you could do it yourself, there are plenty of things that go on behind the scenes that you don't realize.
Don't take it on yourself - let the professionals help you.
Not only can they handle the hard work of staging, pricing, and showing the home - they market your home further and wider than anyone could do on their own.
Real estate agents have many opportunities that the average person doesn't have, paying that 6% real estate commission well worth every penny it costs.
Read on: What is a sellers market?