The majority of home buyers use a
real estate professional when purchasing a home. Yet, many home buyers and
sellers don't fully understand how a real estate agent gets paid. Very few real
estate agents work on salary. The majority of realtors are paid on commission.
Here is a look at real estate commission rates, including who pays them.
How
Does Commission Work?
Real estate commissions are the
standard way to pay realtors. Real estate agents work for real estate brokers.
The broker is the entity that is licensed with the state to do business. All
fees must pass through the broker. The real estate broker pays the realtor
their portion of the commission.
How
Are Commissions Decided?
There can be a wide range of
variation of how much of the total commission is received by a real estate
agent. Agreements vary from broker to broker. New real estate agents can earn
as little as 30 percent of the total commission received by the brokerage. Top
realtors sometimes receive the full commission. Additionally, the broker may
deduct other fees for advertising or office expenses.
What
is a Listing Agreement?
Typically, a seller has a listing
agreement with a broker giving them exclusive marketing rights to the home. The
broker is responsible for finding a buyer. In return, the seller agrees to pay
a commission on the sale of the home. The fee is usually a percentage of the
sales price of the home. This is the commission that is then split between the
broker and the realtor.
What
Are Typical Real Estate Commission Rates?
Brokers decide on the rates that
they will accept on homes that are listed with their firm. The traditional rate
charged by brokers is 6 percent. Some brokers will accept 5 percent. Real
estate commission rates are negotiable. Some brokers may be more willing to
negotiate on rates than others.
Who
Pays the Commission?
In most cases, the real estate
commission is paid by the seller. It is part of the listing agreement. However,
it can be argued that the seller simply passes the price on to the buyer. Real
estate transactions involve negotiation, and sometimes that means specifically
that the buyer pays some of the real estate commission. Additionally, if there
was no agreement to pay commission, the sales price could potentially have been
lower.
Most real estate agents work on
commission only basis. As with almost everything in real estate, it is
important to remember that real estate commission rates are negotiable. Even a
small change in the commission percentage can have a huge effect on the bottom
line. This is true for everyone involved in the transaction, from the realtor,
to the seller, to the broker.
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