There are three main commission structures that real estate agents use: fixed percentage commission, tiered/sliding scale commission and flat fee.
Most agents will generally opt for a commission-based remuneration structure over a flat fee; however, if a flat fee is your desired arrangement, you typically won’t have too much trouble finding a suitable real estate agent.
Let’s look at the differences between these three commission structures to help you decide which one is best for you.
Fixed percentage commissions
Under a fixed percentage commission arrangement, your real estate agent will receive an agreed-on percentage of your property’s final sale price, payable once the transaction has been settled. These commissions are usually only a few percentage points, typically around 1% to 5% of the property sale price. Agents don’t always opt for a nice round whole number, though. You might see an agent charging 2.5% or 4.2% – you won’t know until you ask!
Fixed percentage rates will vary among the agents who use them based on a number of factors, including their real estate experience, marketing prowess, negotiating skills, and sales record. If the property doesn’t sell, the agent generally doesn’t get paid, so choosing to charge a commission means the agent is confident in their ability to find a buyer and negotiate a higher sale price.
Tiered and sliding scale commissions
With a tiered or sliding scale commission, your real estate agent receives a larger or smaller percentage of the final sale price, depending on how much the property sells for.
For example, they may charge 2.3% to sell your property for $525,001 to $550,000, 2.4% for sales at $550,001 to $575,000, 2.5% for sales between $575,001 and $600,000, and so on.
Some agents will use a slightly modified version of this arrangement, in which a fixed commission is attached to a target sale price, and then a second rate is applied to the amount over the target price. For example, an agent might charge 2.6% on homes up to $550,000 and then 4% of every dollar past that figure.
As with fixed percentage commissions, agents using a tiered commission structure typically don’t get paid unless they sell the house.
Flat fees
A flat fee structure is very different to real estate commission rates. A flat fee is a fixed amount that you must pay regardless of what your home sells for. Some agents may ask for this flat fee upfront, even if the house doesn’t sell, or charge it once the sale is settled.
For example, instead of charging a 4% commission on a property’s sale price, an agent charging a flat fee might ask for $30,000 after the property has sold.
This flat fee will typically be based on the target sale price for the property and decided upon after discussion between you and the agent, based on factors including current property prices and market conditions.