Massachusetts real estate commission rates impact all home sales. How much is the average real estate commission?
Real estate fees are a material component of any real estate transaction. As a real estate seller, be that a for sale by owner (FSBO) using a flat fee MLS listing service or a seller leveraging a traditional real estate brokerage at full commission, or a buyer, you’ll be better prepared and equipped throughout the real estate transaction process if you understand how real estate commission rates are established.
More helpful to know may be how Realtor fees are split among the real estate professionals involved in a transaction. And ultimately, based on recent studies, you’ll want to know what the average real estate commission rate is across the United States.
No Standard Real Estate Commission Rates
It’s important for both buyers and sellers to realize that there are no “standard” real estate agent fees that can be charged by a real estate agent or broker.
While there may in an anecdotal manner be an average or typical real estate agent commission rate that develops in any given market, there is no single commission rate, Realtor fee, or standard real estate commission percentage rate for real estate agents, brokers, and Realtors and the services that they provide.
Naturally, an average will develop over time, yet there is no entity in the US real estate market that dictates or sets real estate agent commission fees.
It comes down to an issue of antitrust law. Specifically, the Sherman Antitrust Act, dated 1890, which prohibits certain business activities that reduce competition.
In essence, real estate buyers and sellers have a choice in who they seek to represent them and the corresponding Realtor fees that they are required to pay for services rendered, and therefore competition exists.
That said, an individual real estate brokerage can mandate that their agents all charge a certain commission when listing a home for sale, that’s perfectly legal and at the discretion of the brokerage. What’s not allowed is colluding among brokerages to use a specific commission rate, in effect, setting prices (commission income) in a market.
It was a landmark 1979 lawsuit, United States v. P Foley, that tied up Realtor fees with antitrust law and both heightened the scrutiny on real estate agent fees and altered the course of how real estate brokers conduct themselves as it relates to compensation from clients.
Who Pays Massachusetts Realtor Fees?
When considering the Realtor fees for selling a house in Massachusetts, keep in mind that the total real estate commission rate is decided upon before a home is placed in the Multiple Listing Service (MLS). A total amount of compensation is decided upon between the property owner and the real estate agent representing them, the listing agent or broker.
Most oftentimes the total compensation is a percentage of the sale price when listing a property for sale, and oftentimes one month’s rent when listing a property for rent.
In effect, property owners pay all Realtor fees when selling.
That total compensation or real estate commission rate is then split between the listing agent and the agent or broker that brings the buyer to the transaction (sometimes referred to as the cooperating broker). The split between the two is at the discretion of the listing agent, and agreed upon in writing with a seller before a property hits the MLS. The property owner can influence how the compensation is split, but rarely does in practice.
As an example for illustration purposes, a property owner and listing agent come to an established agreement that the total compensation, or real estate agent commission rate, for the listing of a property for sale will be 6%. It is then at the discretion of the listing agent to offer the cooperating broker, if there is one, part of that commission rate, for example, splitting it in half and providing 3% to the buyer’s agent.
Rarely discussed, there is an additional set of “splits” that take place, between the individual agents and the brokerage firms for which they work – individual agents, or real estate salespersons as they are called in Massachusetts, do not retain the entire gross real estate commission on a transaction. In the above example, the 3% each that the listing agent, and separately, the buyer’s agent receive is actually given to their brokerage firm and the firm takes a percentage and passes on the rest directly to the agent.
Real Estate Agent & Realtor Commission Fees Massachusetts
The latest thorough assessment of real estate commission fees was released in 2011 by Inman News. After polling hundreds of real estate brokers and agents, their data show that Realtor commissions for each real estate agent involved in a real estate transaction average between 2% and 3%.
So how much is real estate commission? The chart below describes, as a % of sale price, the typical real estate agent commission for a single transaction side (i.e. an individual listing agent, or separately, an individual buyer’s agent).
You will note from the below chart that the majority of respondents fall between 2% and 3%, with the skew going closer towards a 3% real estate agent commission rate. Bear in mind that these percentages represent the compensation that each real estate professional receives, and in effect, need to be doubled to accurately represent the total Realtor fees for selling your home.
So, what is the average real estate commission rate for selling a home? The average is between 5% and 6%.