How do commissions work in real estate?
In real estate, commissions are fees paid to real estate agents or brokers for their services in facilitating a property transaction. Here's how they typically work:
Seller's Agent Commission:
Listing Agreement: When a property owner (seller) wants to sell a property, they typically sign a listing agreement with a brokerage firm.
Negotiating Commission: The seller and the agent agree upon a commission percentage (usually around 5-6% of the sale price, but it can vary) that the agent will receive upon the successful sale of the property.
Splitting the Commission: This commission is usually split between the seller's agent and the buyer's agent. For example, if the total commission is 6%, it might be split equally, with 3% going to each agent's brokerage.
Buyer's Agent Commission:
Representation Agreement: A buyer may engage a REALTOR to represent their interests in purchasing a property.
Commission Agreement: The buyer's agent's commission is typically paid by the seller as part of the overall commission agreed upon in the listing agreement. This means the buyer's agent services are essentially paid for by the seller through the proceeds from the sale.
Commission Payment:
At Closing: Commissions are paid from the proceeds of the sale at the closing of the property. The seller's proceeds are reduced by the amount of the commission.
Factors Affecting Commissions:
Negotiation: Commission rates can be negotiated between the seller and their agent, and they can vary based on the property value, local market practices, and specific circumstances.
Market Conditions: In some cases, during slower markets or for high-value properties, agents may be more flexible on commission rates to secure a listing or a sale.
Brokerage Policies: Each brokerage may have its own policies regarding commission rates and how they are split between agents and the brokerage itself.
Commission Structures:
Flat Fee: Some REALTORS or brokerages offer flat-fee arrangements where a set amount is paid regardless of the property's sale price.
Tiered Commission: In certain cases, for high-value properties, agents might agree to a tiered commission structure where the percentage can change at different sale price thresholds.
Dual Agency and Commission:
Dual Agency: In some situations, an agent may represent both the buyer and seller in a transaction. In such cases, there could be a different commission structure, potentially agreed upon by both parties.
It's important for both buyers and sellers to understand how commissions work in their specific real estate transaction and to discuss and agree upon these terms with their chosen agent or broker before proceeding with a sale or purchase.
