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The housing market has had many unexpected twists and turns over the last few years. With prices of homes in Texas and many states skyrocketing to highs not seen since before the Great Recession. Median home prices in the US were up 16.9% in 2021, the largest increase since 1999. Few places in the U.S. experienced a greater boom than Texas, where people are moving in droves.
If you’re looking to buy or sell in the lone star state you may have some questions about the costs of working with a real estate broker. In this article, we’ll cover realtor fees and commission in Texas and that relationship from the financial side. Read on to find out how realtor fees and commissions work in Texas.
Texas is Growing and so is the Texas Real Estate Market
Texas is one of the fastest growing states in the country. On average in 2021, there was a net of over 3,800 people moving into the state every week. This factors in those leaving as well. That’s an astounding level of growth! Much of it is spurred by the expansion of urban areas. Cities like Austin, Dallas-Fort Worth, Houston, and San Antonio, have averaged 48.8% growth in population over the past decade.
According to a study done by Texas A&M, the median price of a home in Texas increased for the 11th consecutive month last November. Shooting up to $319,112. A byproduct of this boom is a unique and lucrative opportunity. This is especially true for those looking to make their mark in Texas real estate.
Additionally, those looking to leave the state could be putting their home on the market at the perfect time. While prospective Texas homeowners might try to get in before the market becomes even hotter. However, one thing important to consider in any scenario is the real estate fees in Texas. These can tack on a lot of additional costs to the homeowner.
The Current Average Commission Rate in Texas is Nearly 6%
The average Texas real estate commission is currently around 5.78%. Significantly higher than the national average found by Real Trends in 2021 of 4.96%. This average has slid over the past few years to compensate for rising home prices. But the Texas realtor commissions have stayed between the typical 5-6%.
While this realtor commission is split between both the buyer and the seller’s agents, it can be a high cost. Take a house costing the recent Texas median. For a home that costs $319,112, the realtor fees tacked on to the final price will be (on average) $18,444 for a total of $337,556 on the sale. A huge increase, and one that only gets bigger as home prices continue to rise.
Who Pays Realtor Fees in Texas?
This obviously raises a lot of questions about who exactly is on the hook for paying these realtor fees in Texas. Does the buyer pay realtor commissions in Texas? Or does the seller? In these real estate transactions, these fees are generally included in the seller’s closing costs.
Commission Fees Are Usually Covered By The Seller
In most cases, it is usually the seller that fronts this cost.
Often times this fee is taken out from the final settlement at the end of the process when the contract is signed and completed. While this may seem an unfair cost to the seller, the cost of working with real estate brokers are often reflected in the final offering made to the buyer. This price might possibly be inflated a bit to account for this incurred cost.
The seller gets to set the asking price so they are able to pass that cost on to the buyer in how high they ask.
Where does the commission go?
Where realtor fees in Texas go after being paid by the seller can change from case to case. Typically follows a particular track. At the time of closing, the sale price of a home usually contains the realtor commission.
From there, the seller’s listing agent typically splits the commission fee with the buyer’s agent 50/50. But the agents often don’t see the full split of that commission from closing costs. Instead, they are obliged to give the real estate who employs them anywhere from 20-50% of the commission that they receive.
If the listing agent has a real estate license independent of real estate brokers, then this wouldn’t apply. All these numbers and percentage splits can be confusing, so let’s continue with the example from above.
What Splitting a Commission Might Look Like
Let’s imagine the real estate commission for a median home in Texas is $18,444. We’ll assume the listing agent and buyer’s agent have agreed to split this commission in half. In that case, they will both receive $9,222. However, let’s also assume that both agents belong to larger real estate brokerages. Therefore, they owe a portion of their commission to their companies.
For example, maybe the buyer’s agent pays 25% of their commissions, and the seller’s listing agent has to give 30% of theirs. The final commissions received by the two agents and the two brokers will be this:
The buyer’s agent will get $6,916.50, while their broker will receive $2,305.50.
The seller’s agent will get $6,455.40, while their broker will see $2,766.60.
Are Real Estate Commissions in Texas Negotiable?
Most real estate agents across the nation do not negotiate with potential clients over their commission. They operate with a set rate that typically runs between 4-6%. This can seem like a lot for a single buyer, but after splits between agents and brokers gets greatly diminished. There are several reasons a real estate agent wants to keep their commission fees high. However, some of these reasons for keeping it high are intended to help the seller.
Why Most Realtors Don’t Negotiate Commissions
A real estate agent is incentivized to keep their fees relatively high to earn more when they negotiate a higher selling price. A lot goes into that claim. For one, a listing agent is driven by their own self-interest to make money if their percentage of the cut is higher.
But more importantly, real estate agents and brokers are a service that you get what you pay for. If they have a reputation as being effective at selling homes they have no reason to take a lower offer than what their services are worth. But paying more (or at least the going rate) for an effective listing agent brings a lot of services to help sell a home that may not come with a cheaper broker.
For instance, paying for a respectable agent often brings better marketing and photography of your home. Real estate commission also pays for pricing analysis and experience that helps with closing the deal.
While there are exceptions to this need for a lot of help from an agent. Such as if you’ve already found a buyer or are selling to a friend or family member and just need an agent to put the finishing touches. There are a lot of potential downsides with going for a listing agent who takes a lower commission.
If you’re going to negotiate for a lower real estate fee in Texas, you need to be aware of the risks. Trying for a lower commission rate for a realtor in Texas will limit the pool of candidates who want to sell your house.
Without an effective listing agent, you might have less marketing and lower-quality images of your house. You could also end up with a bad negotiator, and ultimately end up with fewer and lower offers for your home.
Realtor Commission in Texas Real Estate Rental Market
Of course, there is always renting if buying a home isn’t currently an option. There are agents who are trained and experienced in the world of rentals that can help you navigate that world. But how do those agents get paid?
Who Pays Realtor Fees For Rentals in Texas?
There are a couple of different ways a real estate agency might go about getting a commission for finding rentals in Texas for a client. Rental commissions do not adhere to strict laws and norms found in the housing market. The method, the percentage rate, and whether the renter or the property owner is responsible for the commission. Let’s look at a few ways this is typically handled for real estate rental fees in Texas are handled.
First Month’s Rent
In a lot of cases, the real estate agent will get a cut of a rental payment from the landlord for finding a tenant, typically out of the first month owed and the security deposit. This transaction is often made upfront before the tenant moves in, so the listing agent is guaranteed to get paid.
Lease Percentage
When a tenant has agreed to rent from a landlord for a long duration (typically a year), sometimes the agent will take their rental realtor commission as a percentage of the lease’s total.
Say a tenant is paying $2,000 a month for rent, and they have agreed to a realtor fee of 10%, then the commission will be $2,400. If there are two agents working on the deal, one for the tenant and another for the listing, they will split this realtor rental fee 50/50.
Buyer Pays Flat Fee
Similar to the first month’s rent, sometimes a prospective renter will agree to pay a listing agent a flat fee for finding them a place to live. This is often in the form of a cut of the first month’s rent. The difference here is that it is the buyer directly paying the realtor rather than the agent getting a portion from the landlord.
Lease Extensions
Some agreements have a clause where the real estate agent is given a second commission in the case that a tenant re-signs a lease. Typically this would be paid by the landlord and not the buyer.
Salaries Across Texas
The average active agent with a Texas real estate license makes around $91,000 annually, according to Indeed.com. This is roughly the same as the national average, though it has risen a bit in recent years with the market.
The range of salaries that result in this average, however, is pretty wide because the industry is commission-based.
Realtors just starting out can make around $35,000, however, within 1-2 years that average salary can rise to over $84,000 in Texas.
Across the state, this average salary can rise even higher depending on location. The three highest paying cities for real estate agents in Texas are as follows: $102,637/year in Southlake, $95,050/year in Plano, and $93,459/year in Frisco. What do all three of these small cities have in common? They’re all suburbs of Dallas, Texas, one of if not the hottest real estate markets in the state!
Texas Real Estate Commission in Largest Cities
As we discussed above, housing prices in the major cities across Texas are rising even higher than in the rest of the state. Naturally, this means more money across the board. Higher home prices, higher real estate commissions, and higher salaries for real estate agents.
Let’s take a look at some of the numbers shaping the housing market in the major cities across Texas. Using the average real estate commission in Texas of 5.78% and the average home prices of these cities in 2022, we can calculate the average realtor fee.
Dallas-Fort Worth, TX Real Estate Commission
Dallas-Fort Worth is a massive urban and suburban area, the unplanned merging of two cities marked by 10 lane highways and soaring off/on-ramps, and offices, skyscrapers, and housing developments stretching for miles and miles.
It’s also the fastest growing major city in the entire country. The metropolitan area is now home to 7.5 million people, the fourth largest region in the country. A report from Texas A&M reports that the median home price in the Dallas-Fort Worth-Arlington area is now $360,000, up almost 23% from a year ago.
If we use these median and average numbers (which includes smaller cities such as Frisco and Plainview), we find that a typical realtor commission for Dallas-Fort Worth ends up being around $20,808, to be split between listing agents and brokers.
Houston, TX Real Estate Commission
Houston and its surrounding metropolitan region have long been the largest in Texas. However, recent reports from Rice University claim that growth may be slowing to a trickle. In fact, in two out of the last five years, the city has actually shrunk by a small number, with families fleeing to the suburbs in the midst of a global pandemic.
However, Houston is expected to continue to grow over the following decade, with plenty of jobs opening up in growing sectors such as energy and aerospace. A large and diverse city, Houston has a lot to offer potential residents across many demographics. Housing prices in Houston have not declined with slowing population growth, and have instead followed the trends in the rest of the state.
Given the median home price of the Houston-Woodlands metropolitan region is around $388,747, one can expect real estate fees to be somewhere in the ballpark of $22,470 for this city, rising as you get closer to the average price of a home in this city.
Austin, TX Real Estate Commission
Austin is rapidly becoming the most expensive city to own a home in Texas, with a huge influx of residents over the past decade. Once known for its quirky art scene and the University of Texas, the city has seen the arrival of many tech companies and start-ups, and former California residents.
The census in 2020 found that Austin was the fastest growing large metro over the last decade, the population increasing by over 21%.
This has had a profound effect on the cities housing market, as shown by a more than 30% increase in its median home price in the last year alone, all the way up to $476,000. With a home of that price, the expected real estate commission in Austin should be around $27,513 for the median, however, the average home price is much higher at $574,562.
San Antonio, TX Real Estate Commission
San Antonio is another surprisingly large city, seventh largest urban population in the entire country.
Sitting close to the southern border, it has one of the highest populations of Hispanic or Latino residents of any major city. This makes for a very culturally diverse city, and with a cost of living that’s relatively low when compared to the other major cities in Texas, it’s no wonder many young professionals are moving to San Antonio.
According to the Texas A&M Real Estate Center, the median home price in San Antonio rose almost 18% from last year. Up to $300,000. That means that the median real estate commission home sellers can be expected to pay is somewhere around $17,340. Making San Antonio the cheapest place to buy out of all the major cities in Texas.
Finding a Real Estate Agent in Texas
For anyone looking to buy or sell a home in Texas, understanding realtor commissions is an important first step in figuring out the financial logistics. Next comes the hard part: actually finding someone with a Texas real estate license that you can work well with.
Luckily, there are a number of highly qualified real estate agents out there who are willing to work hard for you. One of the simplest ways to find an agent is through an online directory. FastExpert is one of the best places to find a realtor who will fit your needs. Using a resource like FastExpert makes speaking with potential agents to find the best match straightforward and hassle-free. Saving a lot of time and stress for those looking to buy or sell a home.
