What Is a Brokerage Fee in Real Estate?

What Is a Brokerage Fee in Real Estate?

Buying a home or selling one is the most significant financial transaction that most people will make. As such, many seek the assistance of a real estate agent. Of course, for their knowledge and expertise, these professionals charge a brokerage fee.

What Is a Brokerage Fee?

In the United States, the standard brokerage fee is 5% to 6%. This commission goes toward the listing agent, who then splits it with the buyer’s agent. The fee is usually split evenly. To generate interest in a property, a listing agent has to offer the standard rate of 2.5% to 3%. Otherwise, a buyer’s agent might steer clients toward other options.

Brokerage Fees Are Negotiable

If the same agent represents the buyer and the seller, the agent may decide to reduce the fee to retain both parties as clients. Similarly, if an agent represents a client for the sale and purchase, the agent could be willing to take a pay reduction for the additional business.

The trend is toward flexibility. Compared with 58% of Gen Xers and 39% of boomers, 66% of millennial sellers attempt to negotiate with their agents. Certainly, as millennials age and gain influence, their preferences will become the norm.

How Technology Lowers Brokerage Fees

Above all, there is a reason to negotiate. Technology is streamlining the purchase process and, in some cases, removing agents from the equation.

REX leverages machine learning technology to identify and market to qualified buyers. Meanwhile, the company provides each seller with an agent to assist with pricing, showings, and paperwork. For all this, the company charges a flat 2%.

The Redfin Direct program enables homeowners to sell directly to shoppers via an online portal. There are no agents, which saves on the traditional 5% to 6% brokerage fee. Instead, sellers are assessed 2% for the listing and transaction.

Effect on the Industry

In 2018, just 9% of U.S. home sellers did not work with a real estate agent to sell their homes. However, the industry should not be celebrating. Changing consumer preferences and technological developments are phasing agents out. Therefore, to remain relevant, the agent of the future will have to bring value in new ways or consider lowering his or her brokerage fee.