How Are Realtor Fees and Closing Costs Calculated?

How Are Realtor Fees and Closing Costs Calculated?

Realtor fees and closing costs may get a larger chunk of your total home sale price than expected if not estimated correctly. Homebuyers and sellers often wonder, how are realtor fees and closing costs calculated? We’re sharing what makes up closing costs and realtor’s fees, as well as how to calculate them correctly.

How Are Realtor Fees and Closing Costs Calculated?

Calculating realtor fees involves multiplying the price of the house and the agreed payment percentage between the broker and agent. Meanwhile, calculating closing costs involves adding various charges a buyer pays when taking ownership of a property.

If you’re preparing to list your house for sale, you must know how to calculate closing costs and realtor’s fees.

Calculating the Realtor Fees

Typically, the average realtor fee is about 5% to 6% of the home’s total sales price. The agreed payment percentage is multiplied by the property price. Bear in mind that the fee is a percentage, so 5% is actually 0.05. However, the exact terms of the real estate agents’ commission may vary between the firm they serve and sales.

Moreover, most brokerages split their commission with their agents. For instance, if you sell a house for $200,000 and the current commission rate is around 6%, your equation will be 6/100 x 200,000 = $12,000 in commission.

In general, the seller’s and buyer’s agents split the commission after closing the deal. The company takes out its fee from the sale price and transfers it to real estate agents accordingly. Here’s what agents can expect to be paid based on what your property is selling for:

Home sale price 5% real estate commission 6% real estate commission
$100,000 $5,000 $6000
$250,000 $12,500 $15000
$500,000 $25,000 $30000
$750,000 $37,500 $45,000
$1,000,000 $50,000 $60,000

Factors Determining the Realtor Fees

The structure of agent’s compensation depends on what role they play in the sales process. That is to say, how your brokerage pays you depends on whether you’re a seller’s agent or buyer’s agent. However, it generally depends on the commission percentage by the purchase price.

Client and realtor calculating home price, realtor fees and closing costs

On average, realtors may process around 12 residential property deals per year, and their earnings primarily rely on the realtor fees. Various factors influence how much you need to pay for realtor fees. You may negotiate to get lower prices depending on these conditions:

  • Property value
  • Seller’s situation
  • Repeat client
  • High competition for clients
  • Buying demand
  • Housing inventory
  • The current state of the real estate market

Realtor’s fees often have hidden charges that may make home listing a costly procedure. Fortunately, reliable brokers like CA Flat Fee can help you lower the cost of realtors’ fees as it charges a fixed amount of commission. This offers you more control over your home selling or buying process.

Calculating Closing Costs as a Seller

Closing costs for a seller may reach 8% to 10% of the property’s sale price. In general, you simply need to add the total cost of origination charges, services you can and cannot shop for, taxes, prepaid charges, escrow payment, among others. 

As the seller pays the buyer’s agent commission and listing charges, the closing costs are higher for them compared to the buyer’s closing costs. Here’s a sample calculation of some closing costs:

Origination charge $700
Appraisal fee $450
Lender fees $325
Home inspection $140
Survey $484
Attorney and settlement fees $1,015
Postage $91
TOTAL  $3,205
Owner’s title insurance $1,310
Property tax for 3 months $1,203
Transfer taxes $3,842
Government recording fee $145
TOTAL $6,500

Combining loans of $2,721 and other costs of $6,500, the total closing costs amount to $9,705. Keep in mind that this is only a rough estimate to have an idea of how much you may need to prepare.

Potential Inclusions of Closing Costs

It is worth mentioning that closing costs are the collection of several different fees. Home sellers are responsible for paying realtor charges at closing. The realtor doesn’t pay any closing cost, even if the title implies that.

The average closing costs in the USA amount to $5,749. With this considerable cost, it’s crucial that you understand what the closing costs could entail.

A calculator and notepad placed on top of dollar bills
  • Transfer charges: This covers what state and local governments charge on home sale deals, including transfer taxes, property taxes, and recording fees.
  • Attorney fees and settlement services: Payment if an attorney represents you for the settlement of closing of the sale. 
  • Appraisal: This fee pays for an appraiser who needs to confirm a property’s value using its size, condition, and features.
  • Survey: Payment for a detailed assessment of the property’s boundaries. It also entails essential information like walls, roads, easements, and gas lines.
  • Owner’s title insurance: This is an optional insurance policy, although this is beneficial if you need to face legal battles against foreclosures and property claims.
  • Lender charges: Also known as origination charges, the lender charges are the fees associated with mortgage application and processing.
  • Prepaids: Payment in advance for things you need to pay regularly as a homeowner. This may cover homeowner’s insurance to protect the property against natural calamities, theft, and other unfortunate events.
  • Escrow amount: The escrow includes insurance in case you fail to pay in the future. Additionally, escrow property taxes provide backup should you miss paying taxes.

Related Questions

Do Buyers Need to Pay for Realtor Fees?

Typically, buyers don’t need to pay the fees because the seller pays the real estate agent fees. The seller signs a listing contract with the agent and agrees to pay the commission charges. 

What Should I Do If I Can’t Afford Closing Costs?

The most common way to pay for your closing costs as a buyer if you are unable to afford them is to request a grant with approved states or local housing agencies or commissions, negotiate concessions, or qualify for specific loans that offset these costs. The agencies offer a certain amount of funding for grants for closing costs to help low-to-moderate income people and there are special loans designed specifically for first time home buyers.

Summing Up

It’s always best to arm yourself with knowledge when it comes to buying or selling a house. Being knowledgeable about certain things like picking flat fee agencies, or preferred vendors that can offer you a discount can help you a lot.

Learning how to calculate closing costs and realtors’ fees can help you plan the budget and make the right decisions. You can use the formula mentioned above to estimate the amount you may have to pay to your real estate agent, but it is always a good idea to request a specific estimate be drawn up for your unique situation by a qualified agent.

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