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Realtor Commission Rebate CalculatorThis calculator helps homeowners quickly esitmate the cost of selling their home, and how much their net proceeds will be after accounting for an agent's advertised rebate rate.
Authored by Jose Abuyuan on July 16, 2020
Liquidating what could be your first big investment is hard. There’s a lot to do from the onset, which can be overwhelming without help. To succeed in home selling without any assistance requires knowledge, marketing savvy, and a lot of leg work. This is a tall order for the average homeowner, and not everyone has the skill or time to pull it off.
The prospect of saving money through selling the house yourself seems attractive. However, the odds are stacked against you. Only about 11 percent of American home sellers succeed in selling their own home. Majority of homeowners contact an agent to help them sell the property instead.
Most real estate agents are paid through commissions. Because they are based on percentages, these charges can cut deep into your profits. And that applies whether you’re making a lot of money from the sale. Commissions can all but erase profits from low-priced sales. They could also cause massive losses from bigger ones.
In the U.S., the buyer’s agent and the seller’s agent splits the commission between them. The agents then give a part of it to their brokerage. In many cases, it’s 50:50, but it could vary between agents depending on their field experience. Seasoned real estate agents can keep about 85 percent of their commission.
The percentage you might owe as a commission can vary between brokerages. The standard is around 5 to 6 percent, with the national average being 5.7 percent as of 2019.
Let’s examine how much your agent would get if you sold your house for a 6 percent commission. For this example, we’re assuming your house’s selling price was around $320,000 and cost $500 to advertise. We also assume the following:
For this, we will use our Real Estate Commission Calculator:
| Commission Amount | $19,200.00 |
| Total Sales Costs | $19,700.00 |
| Net Proceeds (prior to taxes) | $300,300.00 |
Of the $19,200 commission, your agent would only receive half this amount ($9,600). Since they can only keep 60 percent of that amount, they would only keep $5,760 from their total commission.
Another reason why commissions are so high is the way agents work. They take on a lot of up-front risks for several clients, only a few of which would close. And we’re not through yet. A lot of their take-home will go to covering the costs they took on. All that driving around for potential buyers adds up.
This doesn’t mean that your money concerns aren’t valid. Of that $215,700, you still need to pay capital gains taxes, which will vary based on your income bracket.
Tell your agent the proceeds you want from the sale. They would work out their commission (and the house’s sale price) from there.
Because of the narrow profit margins, agents stand to lose a lot if they lower their prices. The standard 5 or 6 percent commission is not something agents are willing to part with. It’ll be difficult to convince your agent (or your buyer’s) to take that cut unless the situation warrants it.
For economists, an efficient market encourages competition and low prices. The big winner of this system are the consumers, whose buying power increases. The U.S. real estate system, however, has one major inefficiency. It is the sellers who pay the commission rates of both their agents and the buyers’. This keeps the percentages stagnant even as the markets rise and fall.
While sellers can opt out, most do not due to the difficulty involved. Real estate agents are also at the losing end since their incomes are not guaranteed. The elusive big sales aside, most agents struggle to make ends meet. You can’t really fault them for being a bit protective of their income.
The percentages involved in real estate commissions aren’t set in stone. You might pay a higher commission if your home is dilapidated, inexpensive, or harder to sell in general. Market conditions may also warrant higher commission charges. Greater demand and higher competition between agents can lower your commission percentage. Poor markets or greater inventories lead to higher, more inflexible commission percentages.
Your preferred selling approach might also be a factor. An agent or brokerage might charge you more if you insist on an elaborate marketing strategy.
One way to receive a lower commission price is through a commission rebate. You can either receive an offer for a rebate or bring it to the table during negotiations. Often, brokerages offer rebates themselves in the hopes of attracting buyers. Real estate rebates are available to both buyers and sellers across 40 states. If your state allows rebates, you could save thousands on the commission price of your home.
Most rebates are offered by the brokerage and comprises a part of the broker’s commission. If your buyer is adamant at getting the house, you could also negotiate a rebate from your agent or theirs. An agent might be willing to accept a smaller gain rather than lose the buyer. They might even offer the rebate to encourage you to seal the deal.
Not all the rebates you receive are direct cash discounts from your commission. Sometimes, the brokerage would cover extra expenses. These could include closing costs, home inspections, or moving services. Other times, it could be for things you would otherwise buy, such as gift certificates for hardware stores. In any case, you will receive the equivalent of the rebate’s percentage in freebies.
Gift cards and gift certificates only save you money if you use them. Find out where you can use them and spend as much on them as you can.
Even a rebate of 1 percent can save you a lot of money. Here’s how much you can save in our example:
| Pre-Rebate Commission | $19,200.00 |
| Commission Rebate (1%) | $3,200.00 |
| Net Commission Cost | $16,000.00 |
| Total Sales Cost | $16,500.00 |
| Net Proceeds (prior to taxes) | $303,500.00 |
As far as savings go, $3,200 isn’t that bad. That cut could be from your commission or through other expenses that you wouldn’t need to spend on. You could negotiate a higher rebate from your agent if they also represent your buyer. Since they’re getting the whole commission anyway, they’re likely to be much more flexible.
In our example, let’s assume your agent (representing you and the buyer) accepts a rebate of 2 percent:
| Pre-Rebate Commission | $19,200.00 |
| Commission Rebate (2%) | $6,400.00 |
| Net Commission Cost | $12,800.00 |
| Total Sales Cost | $13,300.00 |
| Net Proceeds (prior to taxes) | $306,700.00 |
With a 2 percent commission rebate, you save $6,400. Meanwhile, your agent would take home 60 percent of that large commission ($7,680). It isn’t the big payout they were expecting, of course. But it is still way more than they could’ve gotten if they split the deal with another agent. It’s a win-win.
Some brokers offer a rebate as a percentage of the gross commission. Rather than lower your commission, they give back a part of the commission. To get almost as big a savings as your standard commission, you need rebates in the double digits:
| 15% | 30% | |
|---|---|---|
| Pre-Rebate Commission | $19,200.00 | $19,200.00 |
| Commission Rebate | $2,880.00 | $5,760.00 |
| Net Commission Cost | $16,320.00 | $13,440.00 |
| Total Sales Cost | $16,320.00 | $13,940.00 |
| Net Proceeds (prior to taxes) | $303,180.00 | $306,060.00 |
The aim of real estate rebates is to foster competition among brokerages. The goal is to encourage lower prices and spur new ways to compensate real estate agents. Rebates have been championed by the antitrust division of the U.S. Department of Justice.
Brokerages are divided on their opinion of rebates. The camp opposing them believe that the practice cheapens the profession. They allege that rebates give an unfair advantage to some brokers over others. Rebates could lead to bidding wars that could scuttle the profitability of brokerages.
Rebates might also mislead consumers into taking deals against their better interest. The perceived savings from rebates could distract them from the deal in its entirety.
Rebates are not available nationwide. All real estate commission rebates are banned in the following nine states:
Iowa, meanwhile, puts heavy restrictions on rebates. Home buyers cannot receive rebates when they obtain services from more than one real estate broker in a transaction.
Negotiating the appropriate price of a commission is possible. To succeed, you would need to have a bargaining chip to get your agent (or the buyer’s team) to accept a difference in terms. This isn’t something your agent will appreciate unless they are keen on closing the deal. That is their income on the line. In the right conditions, you can negotiate a rebate from many agents.
One popular way to guarantee a good percentage cut is through dual representation. Suggest that your agent represent both you and your potential buyer, then ask for a rebate. If they say yes, you’ve secured a lower commission payment while letting them take home a bigger payout.
The market can determine how receptive agents and brokers are to negotiating rebates. Analyze the market for anything that adds pressure to your agent or brokerage. A high demand and low inventory will put the chips on your favor. Agents will scramble to take a cut and seal the deal.
Build a good working relationship with a trustworthy real estate agent. Clever Real Estate found that repeat customers are a leading factor in reducing commission rates. If you’re a house flipper, a real estate agent you can trust is an excellent addition to your home selling team.
You can also shop around for brokerages that offer rebates. Do your research and find which realty service provides the best service and rebates. In general, smaller boutique agencies are often more generous with rebates and percentage negotiations. Their operating expenses are not as large due to lower overhead. They often let their agents keep more of their commission as well. Since their incomes aren’t as affected, their agents are more welcoming of these rebates.
Smaller agencies do not have the same sales quotas. Their agents are thus not stretched as thin. They can give your home the attention it deserves. Any commission they receive is well-earned.
Selling with a commission-based agent is the industry standard. It is, however, not the only option available. While selling by owner is difficult, it can be a viable option for those with market savvy and patience. Meanwhile, homeowners can strike the best of both worlds by hiring an agent who works for a flat fee.
Each option comes with its own pros and cons:
| Pros | Cons | |
|---|---|---|
| Commission-based agent | Agents that work for commissions are motivated to look for the best price for your home. An agent does much of the legwork needed to sell your home. You do not need to worry about staging, market research, and legal compliance paperwork. Agents have many resources at their disposal to advertise your home. Their own professional networks can help them find the ideal buyers for your home. The agent’s brokerage may provide a rebate to sweeten the deal. | The more expensive your property, the more money you spend on commissions. You get little to no improvement in service quality depending on the price. Commissions can cut into your profits. If your house isn’t worth much, this could represent a significant amount of gains lost. Your agent might convince you to sell your home for a lower price. They may do so to meet a quota, to speed up the deal, or to cut their losses. |
| Flat-rate Agent | Flat-rate agents charge a regular fee for their services. The fee, often in the hundreds of dollars per hour, is cheaper than a commission. They offer identical services to commission-based brokerages. These brokerages make money by selling houses fast. This may come in handy if you need to liquidate your home. | Flat-rate agents aren’t working for a large payout. They are thus not as motivated to sell your house for the best possible price. You still need to pay the buyer’s agent a commission. They aren’t very common. You need to look for these agents and brokerages. |
| Fee-for-Service Brokers | These brokers charge a flat fee for a selection of services. You pay only for the services that you need. Some of these services can make your home more visible in the local housing market. | For services they don’t offer, you are on your own. |
| For Sale By Owner | Selling the house yourself means you get to choose the selling price. You get to keep all your home’s sale value (minus taxes). Your general costs are often much lower. | You need to handle all the tasks by yourself. This can range from legal prep work to advertising. You could hire specialists to help you, but this increases your costs. The tasks are time-consuming. You might not have enough time for all of them. It takes much more time to sell a house this way. Homes sold by owners sell for far less than those sold through real estate agents. You will need to contend with attachment issues. Letting go is not easy. |
Of the above, selling it yourself is the most difficult option. Despite the attractive benefits, this option is not as popular due to all the work that you need to do. Agent-based sales are better in general, but you don’t need to stick with a large commission to do that.
The flat fee system benefits both the agent and the seller. The seller has the obvious advantage of keeping more of their proceeds for the same services. Agents, meanwhile, receive a guaranteed income while working for their clients. This is a far cry from what they would expect in the market.
To make enough commissions, agents need to trawl for new clients. This time-consuming, often fruitless activity can occupy much of their time. By paying the agent a flat rate, you free them from needing to look for more clients. The money they earn could be comparable or higher to what they would’ve received from a commission.
If you live in a state where rebates aren’t allowed, don’t fret. You still have the chance to reduce your commission costs through flat-fee services. A bit of research can help you find brokerages whose agents work for flat fees.
Now suppose you’re upgrading to a new home. How much would you need to afford it? Check out our guide on our mortgage calculator.
Jose Abuyuan is a web content writer, fictionist, and digital artist hailing from Las Piñas City. He is a graduate of Communication and Media Studies at San Beda College Alabang, who took his internship in the weekly news magazine the Philippines Graphic. He has authored works professionally for over a decade.
