How to Calculate Real Estate Commissions

Most houses are bought and sold with the assistance of Realtors.

Real estate agents are invaluable sources of information for first time home buyers, but they do come at a cost. According to realtor.com, real estate agents charge about 6 percent of the home's sales price for commission. Most people will tell you that the buyers don't have to worry about this since the sellers pay the commission. This is a bit misleading, though, because most sellers will try to factor the commission into the price of the house, thus making the buyers pay more. Either way, calculating the amount of the commission is easy once you determine the percentage rate.

Step 1

Ask your Realtor what the commission rate on a particular home sale will be. For instance, suppose the commission rate is 4.5 percent. Divide the percentage by 100 to obtain the decimal form that you will use later in the calculation. For example, 4.5 / 100 = 0.045.

Step 2

Consider the likely sales price of the home you are buying or selling. If the deal is final, you will know the actual price. For instance, consider a house that is likely to sell for $250,000.

Step 3

Multiply the sales price of the home by the decimal form of the commission rate to calculate the Realtor fee:

Realtor fees = 0.045 x $250,000 = $11,250

Tip

The percentage rate for a real estate commission is negotiable. You should negotiate the best rate you can before signing any documents with your agent.

Once a commission rate of 6 percent or less is agreed upon, it cannot be reduced if the property is in foreclosure or will result in a short-sale. Any amount over 6 percent can be renegotiated.

Warning

One way to reduce the real estate commission you pay is by receiving a rebate from your agent after the sale closes. However, be aware that there are 10 states in which rebates from real estate agents are illegal: Alabama, Alaska, Iowa, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon and Tennessee.

references & resources