Commission Calculator New York 2023CASAPLORERTrusted & Transparent
New YorkReal Estate Commission Calculator
What You Should Know
- The commission paid to the real estate agents in New York State is around 6% for selling a property and around 12% of annual rent when renting a property.
- The seller is the one who pays for both the commission of the seller agent and the buyer agent at the time of sale, on the other hand, tenants pay the agent commission when it comes to renting a property.
- The total commission is split between the buyer agent, the seller agent, and their respective brokerages.
- Real estate agents generally share some of the commission they earn with the brokerage they work for.
Who Pays the Commission in New York?
Depending on the type of transactions, different parties may be responsible to pay the fees to real estate agents. There are different parties paying the commission for purchase and rental transactions, so it is important to know who is responsible for paying real estate agent fees to avoid surprises.
If a property is for sale, then the real estate commission is paid by the seller of the home, the buyer does not directly pay any commission to their agent. For example, if the home price is $500,000 and the commission is 6%, the total commission would be $30,000. Therefore, the seller receives $470,000 ($500,000 - $30,000). This might seem great at first, but it is important to realize that although the buyer agent fee is not paid by the buyer, the seller often includes the real estate commission into the asking price. Therefore, indirectly the buyer and the seller share the real estate commission fee. Even though the seller pays for the commission, lower fees will benefit the buyers just as much as the sellers. There can be an exceptional circumstance where the seller may decide not to pay the real estate commission for the buyer agent, in this case, the buyer will have to cover the agent’s fee. In this case, the agent will let you know beforehand.
$1,000,000 Property Selling Price Example
If a property is for rent, then the homeowner does not need to pay any commission. Instead, the tenants who are moving in will have to pay between 8% to 15% of annual rent to their real estate agent. The most common commission paid to the agents is 12% of the annual rent. For example, if a tenant is planning to rent a condo for $2,500 per month, then the annual rent would be $30,000. The tenant will have to pay up to 15% of that $30,000 to their real estate agent. In total, the tenant should expect to pay up to $4,500 for real estate agent fees when renting a property for $2,500 per month.
In 2019, New York State’s Housing Stability and Tenant Protection Act was passed that made tenants free from paying real estate agent’s commissions, however in April 2021, the court overruled the legislation due to the lawsuit filed by the Real Estate Board of New York City. It is sometimes possible to find rental listings with the label “No-Fee Apartment.” It means that a tenant does not have to pay broker fees upon closing on the deal.
How Is the Real Estate Commission Distributed?
The average total real estate commission in New York is 6%, and it is split between the buyer’s and seller’s agents each receiving 3%. In most cases, the buyer’s or the seller’s agent you hired does not receive the entire 3% of the real estate commission. If a brokerage firm employs the agent, the firm also receives part of the commission. After the commission is paid to the brokerage, the agent is left with 40% to 60% of the original fee paid. This percentage split between the agent and brokerage is determined by negotiations and can depend on how much business the agent brings to the firm. Therefore, taking an average of 50% between agent and brokerage, the agents and their brokerages each essentially receive 1.5% of the house price.
The flowchart below provides an illustration on how real estate commission is distributed between different parties. If the final home sale price is $500,000, the total real estate commission paid is $30,000, as it is 6% of the home price. This $30,000 is further split between the seller’s agent and the buyer’s agent, which is 50-50 in most cases, hence each receives $15,000. If the agent works with a brokerage firm (the typical case), then each brokerage firm also receives about 50% of what the agent received, hence the $15,000 is split into half or $7,500. Even though a commission of 6% seems like a lot, it is important to realize that this commission is distributed between several different entities in the home sale process.
In some cases, a seller’s agent may receive a full 6% commission if the buyer does not have an agent. In New York, if a buyer does not have an agent, the seller’s agent is allowed to represent the buyer at the same time. When an agent represents both, a buyer and a seller, in a single deal, it is called a dual agency. Some states illegalized dual agency because a dual agency may lead to a conflict of interest, which may hurt a buyer or a seller. The state of New York allows dual agency, which means that a buyer and a seller may have the same real estate agent for a single deal. Since there is only one real estate agent for the deal, the real estate agent will receive 6% of the commission instead of 3%.
Can I Save on NYC Real Estate Commission?
Real estate agent fees in New York can be quite hefty, but there are ways for a seller or a tenant to save on the commission. When a seller and a buyer close on a property, the seller has to pay around 6% in commission to the real estate agent. Even though the seller pays the commission, the buyer should also be aware of the cost because the commission is still priced in the cost of the house. There are different ways to save on the commission.
Buyer Commission Rebate
This technique is relatively new and is not widely adopted in New York yet. It is used by the agents who represent buyers, and it aims to provide a commission rebate to buyers. With this rebate, a buyer’s agent gives a certain portion of the commission back to the buyer. This is a smart approach for buyers to protect themselves in case a seller will not try to save on commission fees because the buyer will get a part of the commission back. It might be difficult to find brokerages that offer this rebate, but it is worth the savings.
Usually, agents take a percentage of the home price as their commission, but it does not always have to be the case. Sometimes, it is possible for sellers to negotiate the fee and even change the billing structure completely. There are two different types of real estate commission payment methods:
- Percentage of the Home Price – In this payment method, the real estate agent fee moves in conjunction with the home price, as the home price increases, the agent fee also increases. This payment method can motivate the agent to try to get a higher price for the seller as they also receive a bigger cut. For example, on a $500,000 home, 6% agent fee is $30,000 ($500,000 x 6%), whereas on a $600,000 home the 6% fee equates to $36,000 ($600,000 x 6%), which is $6000 or 20% more.
- Flat Fee (Fixed Fee) – A set fee is paid to the real estate agent for their services, such that changes in the home price do not impact the agent commission. For example, if the fixed fee is $25,000, it does not matter if the home is sold for $500,000 or $600,000.
On average, a flat fee commission tends to be cheaper than the percentage fee. However, it is important to note that the commission is used by the agent to cover the costs of selling the home such as good photography, marketing expenses, and other supplies. If the agent receives a fixed fee, they might not be incentivized enough to get a higher price for the home as they do not earn more if the home is sold for a higher price.
A seller can look for an agent who would like to go with the flat fee instead of a percentage. This may be especially useful for expensive properties because the flat fee could be much cheaper than a percentage of the home price. On the other hand, a flat fee may not be the best option for cheaper properties because the flat fee may be more expensive than a percentage. The better option depends on the property price, the flat fee offered and the commission offered. If the flat fee is less than the expected commission payment, then it is better to proceed with the flat fee. Otherwise, a percentage of the home price may be a better option.
Some brokerages may offer some deals or discounts on their services. It might be worth looking into brokerages that provide certain discounts or rebates because even a single percent off the commission may save tens of thousands of dollars. It is important to be careful looking for a discount brokerage to work with because some of them may have a bad reputation. The reason why they provide discounts is because they need clients, and if the market is busy, it might be a warning sign. It is also possible to negotiate with the current broker, but it may not yield any results.
For Sale by Owner (FSBO)
It is possible for a seller to list a property on MLS without having a real estate agent representing them. It also does not have to be listed on MLS. It is possible to list properties on other marketplaces that have consistent traffic of users. Since there is no real estate agent working on the deal, the seller does not have to worry about the commission fees. On the other hand, FSBO listing means that the buyer and the seller will have to prepare all the documents on their own, which may be time-consuming and very resourceful.
No-Fee Apartment NYC
The real estate market in New York is very different from other real estate markets. When a person is trying to rent a property in New York, they may see labels such as “No Fee” or “No Broker’s Fee.” If a listing has a label like that, it means that a tenant does not have to pay the real estate agent fees. This may be a good way to save money because a tenant has to pay 8% to 15% of annual rent to the real estate agent upon closing. The most common commission for real estate agents in NYC is 12%, which can be thousands of dollars in savings. If there is a real estate agent working on the deal, then the landlord or the holding firm has to pay the fee instead of the tenant. It might also be the case that the landlord or the holding company find tenants themselves, which allows them to save on the real estate agent fees.
There are various reasons why a landlord or a management company would choose to proceed with the “No-Fee” listing. Since a “No-Fee” listing means that the tenant does not have to pay extra to move in, there may be more demand for the listing. This will allow the landlord to pick the best tenant out of a larger pool of applicants. In addition to that, the landlords may raise the rental price that would cover the cost of the brokerage fee, and provide an extra return in the long term. If the landlord has the ability to find tenants on their own, they can save up to 15% of annual rent and possibly pass it on to the tenant. Another reason should signal as a warning sign for potential tenants. It might be the case that the landlord is willing to accept the cost of the fee to find a tenant because the property has problems. If the landlord cannot find the tenants who would be willing to pay the fee, they may cover the cost just to get someone in.
There are many potential ways for landlords to benefit from a “No-Fee” listing at the expense of a tenant. It is important to be skeptical of such listings and proceed with caution. The place should be thoroughly inspected, and the rent should be discussed and negotiated. The tenants should make sure that they are not overpaying in the long term simply because they can save on a “No-Fee” listing at the moment. The tenants should also be aware of the agents who advertise a property as a “No-Fee” and then add the fee once prospective tenants show interest in the property. It is wise to be realistic when looking for an apartment. As a rule of thumb, if a listing looks too good to be true, a tenant should be very careful.
Frequently Asked Questions
As a Buyer, do I have to pay the Real Estate Commission?
No, the real estate commission is paid by the seller of the home, the buyer does not directly pay any commission to their agent. This might seem great at first, but it is important to realize that although the buyer agent fee is not paid by the buyer, the seller often includes the real estate commission into the asking price. Therefore, indirectly the buyer and the seller share the real estate commission fee. There can be an exceptional circumstance where the seller may decide not to pay the real estate commission for the buyer agent, in this case, the buyer will have to cover the agent’s fee. In this case, the agent will let you know beforehand.
As a Seller, Can I Negotiate the Real Estate Agent Fee?
Yes! The real estate agent fee can be negotiated with the agent as there is no legally set real estate agent commission rate set by the New York State Department of State (NYSDOS). Negotiating with the agent is best because the real estate commission makes up a large portion of the home sale process. However, it is important to keep in mind that a lot of the fee that is received by the agent is used in the process of selling the home, such as online marketing costs, open house material, supplies and mail marketing material, etc. Hence, it is best to discuss with the agent the services that are offered and then negotiate the commission fee.
As a Buyer, Can I Negotiate the Real Estate Agent Fee?
In most cases, no, the simple reason being that you do not directly pay any of the agents in the home buying process.
What is the Cash Back Rebate in the Real Estate Commission?
There are real estate agents that might offer a cash back rebate after closing. Essentially the buyer agent pays back a certain amount of the commission to the buyer once the home is bought. This is a strategy used to attract more customers and can be a viable option for home buyers who are on a budget. If the agent offers a 30% cash back rebate and the commission they earned on a $500,000 home is $15,000, they will give back 30% or $4,500 to the buyer once the home is bought.
Do I have to pay taxes on the Real Estate Agent Commission?
No, the taxes are not paid by the seller or the buyer of the homes. The taxes are paid by the agent and the brokerage separately.
Who sets the commission rate?
There is no set requirement for real estate commission according to the Division of Licensing Services. As there is no legal requirement, the real estate commission is set by market conditions and individual negotiations, in New York, you can expect to pay 6% as commission.
What does it mean to Double-End a Real Estate Commission?
Double-ending a real estate transaction is when one agent represents both buyer and seller in the transaction. The single agent receives the entire commission. There is a conflict of interest as the agent cannot satisfy the needs of both the seller and buyer. The seller wants the home to sell for the highest possible price, whereas the buyer wants to buy it at the lowest possible price; how can one agent satisfies both these contradicting goals? Therefore, in most cases, dual agency is not advisable or used. Some states have declared this form of real estate commission illegal.
In New York, double-ending a transaction, or dual agency, is legal.
Who Regulates the Real Estate Licenses in New York?
The Division of Licensing Services part of the Department of New York regulates the real estate licenses in New York.
What are some other Fees while Selling a House?
Closing costs are some of the highest in New York state ranging from 3.5% to 5% of the home price. Closing costs can include transfer taxes, balance on the mortgage, legal fees, any recording fee, etc. Closing costs must be paid in most real estate transactions. You may have to pay closing costs even when you refinance your home loan on your property in New York. Some people may save money when refinancing their property using CEMA Loans, which allow eligible homeowners to bypass taxes paid on loan origination.
What is a One Percent Real Estate Agent?
There are special cases where the listing agent will offer a discount commission of 1% to home sellers. This is done in order to get more home sellers who are on a budget and prefer cheaper alternatives rather than the full 3%. The buyer agent still has to be paid 3%, so the total comes to 4% of the final home price rather than the original 6%. However, in NYC it can be difficult to find 1% agents.