Broker Fees

What are broker fees?

Updated March 11, 2022

After selling a home, a real estate agent earns a commission, also known as a broker fee. The seller (the party selling the home) pays the listing or seller’s agent the commission and splits the payment with the buyer’s agent (the real estate broker representing the party buying a home). 

Broker fees usually range between 5% and 6% of the property’s selling price but can be as low as 4% and as high as 7%. As a result, both real estate brokers–-the seller’s and buyer’s agents––involved in the transaction receive anywhere from 2% to 3.5% of the total sale.

It’s in the seller’s best interest to factor the commission into the price when listing their home on the market. Even if buyers don’t pay a broker’s fee directly, they frequently pay it indirectly through a higher purchase price.

What do broker fees cover?

Broker fees cover marketing the property until it sells and is closed. Marketing tactics include promoting the home online on the MLS and other websites and in person—such as through weekend open houses and private showings. The percentage also covers how the property is presented, including professional photography for the listing.

Broker fees for homes sales are split between the buyer's agent and listing agent. There are fees for rentals, too, but depending on where you live, the tenant may or may not be responsible to pay it. Scott Graham/Unsplash

Real estate agents negotiate offers and correspond with all parties involved in the sales process. In addition, they often handle inspections and appraisals and assist at closing. The broker’s fee covers all of the real estate agent’s services connected to selling the home.

How do you negotiate broker fees?

Since no laws dictate the percentage paid, sellers can negotiate with their real estate agent and ask if they will accept a lower rate. However, much of a broker fee pays for marketing a home, a necessary tool to sell any house. Thus, a seller may sacrifice some of that marketing budget by lowering a commission, and a property could take longer to sell and ultimately languish on the market.

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Still, depending on the property and the state of the real estate market at the time of listing, it may be worthwhile to try to and negotiate a lower broker fee with your real estate agent.

What does dual agency mean?

This term denotes a real estate agent who represents both the buyer and the seller. However, on occasion, a buyer does not work with an agent, or the seller decides to sell their property without a broker, also known as FSBO (For Sale By Owner). In either circumstance, the real estate broker working for the other party would perform dual agency and represent both the buyer and the seller. 

Dual agency can be tricky because one broker must juggle two clients and have their best interests in mind throughout the process. Most states allow dual agency, but it is not legal in Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas and Vermont.

The main advantage of dual agency is a cost savings to the seller. Often the real estate broker will reduce their fee, saving the seller thousands of dollars. Communication is also more direct when dealing with one agent, saving time and energy during the home buying and selling process.

What are rental broker fees?

In New York City, where about two-thirds of the population rents, real estate agents charge a broker fee, which is essentially a finder’s fee. The tenant likely pays this cost. Typically, the commission ranges from 12%-15% of the yearly rent. For example, if an apartment rents for $2,500 per month, or $30,000 per year, the broker fee would range from $3,600 to $4,500. These fees are a top income source for real estate brokers in New York City.

Broker fees exist in other cities where apartments are in high demand. In San Francisco, for instance, the broker often receives half of the first month’s rent as a commission. In most cases, the landlord pays the fee. In Boston, a broker’s fee is often equal to one month’s’ rent, and the tenant may be responsible for payment. One month’s rent is commonly the fee in Chicago, but the property management company or landlord pays the broker.

In both purchasing and renting real estate, broker fees are an added cost to the seller, the renter, and the buyer.