All About Real Estate Commissions
The commission is the biggest expense for a seller
The commission is by far the biggest expense
for a seller in a real estate transaction. It is often hard
for people to accept paying so much money in commissions
simply because...it is so much money. However, contrary to
the popular opinion the realtors do not "get rich on a
single transaction" (see the example below).
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What is the "standard" commission?
There is no standard commission. Commissions
are subject to negotiation between the seller and the agent.
Commission can be a percentage of the sale price or a flat
fee. Most brokers charge commissions anywhere between 4% and
6% of the sale price, but this is not a rule and commissions
sometimes do not fall into this range.
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What does the commission pay for?
The commission is always split between the
listing agent and the buyer agent - the agent that finds the
buyer for the property and represents him/her in the
transaction. The commission is usually split in half between
the two agents, although this is not a rule either. So, a
part of the commission, usually half, is an incentive for
buyer agents to show your property.
For example: If your listing agent is
charging you a commission of 6%, 3% will go to the agent
that finds a buyer for your property and the other 3% goes
to your listing agent.
Once the property is sold and the
commissions are issued, the money goes to the real estate
broker that the agent works for. The broker keeps usually
anywhere between 20%-50%, and only after that is when the
agent gets his/her share of the commission. In addition to
that, all the advertising expenses for your listing are paid
by the listing broker and the listing agent.
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An example of how to calculate your agent's real estate
commission
Let's look at an example to see how much a
real estate agent gets paid on a transaction of a $300,000
home, assuming the seller pays a 6% commission.
3% of the commission goes to the buyer
agent. The listing agent gets the other 3%.
3% x $300,000 = $9000
Let's say that the broker office keeps 50%,
then we have:
$9000 : 2 = $4,500
So, in this example, out of the $18,000 that
you pay in commission your agent earns $4,500. |
