Whether you are buying or selling a home, or are interested in pursuing a career in real estate, it is important to understand the basics of real estate commissions. Understanding the basics of real estate commissions means understanding who pays the commission, how much, who receives the commission, and whether the commission is being split. This is a guide to aid you in understanding the basics of real estate commissions.
A real estate agent works for a real estate broker, and all commissions paid to the real estate agent first go to the real estate broker. A real estate agent by herself cannot pay or receive a real estate commission or sign a listing agreement with the seller. Only a real estate broker can. For instance, Jane Smith, a real estate agent must be associated with a broker like ABC Realty or Century 42 in order to conduct business.
Real estate agents can be compensated by the real estate broker in a number of ways. New real estate agents generally receive less than experienced agents. In fact, they can receive as little as thirty percent of the total commission received by the real estate broker. On the other hand, experienced real estate agents who are top producers can receive up to one hundred percent of the total commission and simply pay the broker what is known as a desk fee (a fee to use the broker’s name and office).
The listing agreement executed by the seller usually provides a single real estate broker the right to exclusively market the home. Upon sale, the seller is, of course, required to pay a real estate commission to the broker. The commission is usually a percentage of the actual sale price. If a different real estate broker actually finds the buyer, the real estate commission is usually split between the finder (the buyer’s broker) and the listing broker (the seller’s broker).
The split need not always be equal between the seller’s broker and the buyer’s broker. The listing agreement could provide that the seven percent real estate commission be divided with the seller’s broker receiving four percent and the buyer’s broker receiving three percent, or vice versa. Experienced sellers sometimes negotiate this split with the listing broker depending on what type of real estate market they are facing, a buyer’s or seller’s.
Since the real estate commission is usually part of the sales price, it can be said that it is the buyer who pays the commission. Although, if the seller had been unrepresented and received the same sale price for the property, that money would actually be the seller’s. Regardless, the fact that any real estate commission must be paid at all is one reason many home sellers attempt to sell their home on their own, and many home buyers look to purchase homes directly from the owner. Hopefully, this article has cleared up some of the confusion and aided you in understanding the basics of real estate commissions.