The Basics of Real Estate Commissions

Real estate commissions can often be one of the most confusing aspects of selling real estate. Real estate agents are paid in a variety of ways, depending on whom they work for, where they live and what services they provide for you, but the overwhelming majority are paid as a percent of the sales price once a transaction is completed. Most real estate brokers offer both flat fee real estate agent commissions and percentage real estate commission options for clients. Before you hire an agent, it’s important to ask about their compensation agreement so that you can weigh all your options. In this article, we will go into detail about how real estate commissions work.

What Are Real Estate Commissions?

While many professional services, like attorneys or accountants, charge by the hour, real estate agents typically work for a commission in the form of a percentage of the money exchanged in the final transaction. Real estate agents typically receive their commission when they successfully negotiate and complete a real estate transaction for a residential property or commercial real estate. If there’s more than one realtor involved, real estate commission percentages and payment procedures may vary.

An alternative real estate commission model involves paying realtors flat fees for specific services performed during a transaction without increasing their commission rates. If you decide not to pay your realtor a percentage when selling your house but instead pay them a flat fee for marketing and other services typically provided by real estate agents as part of the larger transaction – such as negotiating repairs and inspections – expect that they will still receive their commissions on any brokerage fees charged by lenders and third-party service providers, which may be passed onto you at closing.

Real Estate Commissions

How Much Do Real Estate Agents Make From Real Estate Commissions?

Real estate commission rates are typically 6% or 8%. Agents can charge different amounts because there are no federal regulations that dictate what agents should charge. Some states regulate commissions by limiting them to 6%, while others set an upper limit of 10%. 

The method by which a broker splits commission between an agent or company is different, but 60-40 splits with the agent receiving 60% are common. There are also 50-50 splits and 70-30 splits. The broker may set the breakdown for all transactions or adjust it based on individual success.

Real Estate Commissions

Who Pays Real Estate Commissions?

The seller typically pays the total commission once the process is done and all closing costs are paid. Sellers will consider the loss of commission when calculating the asking price of a home and keep this in mind during negotiations.

Sometimes, the listing of a property will state that 1.5% of the commission paid by the buyer agent is covered by the seller. This allows the buyer to pay more or less. This is very rare and usually occurs with bank-owned properties. It is not unusual for the buyer agent in these situations to decline additional payments from their client.

Real Estate Commissions

Can This Be Negotiated?

When a seller lists with an agent, he or she sets a commission rate. This commission is usually split equally between the buyer’s agent and the listing agent. The seller has a right to negotiate commission with the listing agent before putting the home up for sale. Sometimes you might want to pay more commission. A brokerage firm and agent who go above and beyond to help their seller might get a higher split of commission, perhaps 7% with the buyer’s representative – although the seller must make that call.

The payment or commission your agent receives is part of a wider discussion about the services and work involved in buying or selling a house. This is a crucial conversation that should be had with the real estate agent sooner rather than later.

Real Estate Commissions

Conclusion

Yes, it may seem like an awkward question to ask when you first meet with a potential real estate agent about selling your home – amid all the conversations about staging, marketing and open houses. But this is necessary in order to discuss how they will be paid before listing your home with any broker. It is also necessary for first time homebuyers on a budget to understand how real estate commissions work as well. Real estate agents are typically paid as a percentage of the sales price once a transaction is completed. So contact one now and find out more!

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