Taking The Mystery Out Of Commissions
How do real estate brokers get paid? It seems that most people dont fully understand how commissions and commission splits work, so I thought would try to explain it as best I can.
When you are selling your home and list it with a REALTOR, that broker is your listing agent and that real estate company is your listing company. Most real estate companies charge a fee (commission) to list your house and that fee is usually a percentage of whatever the house eventually sells for. In most cases, nothing is paid upfront. The commission is paid at closing and usually runs anywhere from 3.5% to 7% (with the industry average running between 5% and 6%.)
The commission paid by the seller to list and sell their house is used to compensate both the listing company/broker and the broker representing the buyer. Therefore, buyers dont pay anything to the broker working for them. In other words, it doesnt cost the buyer anything to have a broker working for them to help them find and close on a property. The buyers broker/company is compensated out of the commission fee already promised by the sellers when their property was listed.
In our MLS there is an unwritten rule that the buyers broker/company will receive at least 2.4% of the sales price at closing. If the listing agreement was for 6%, that means the listing company would get 3.6% and the buyers broker/company would get 2.4%. If it was a 5% listing, the listing company would get 2.6% and the buyers broker/company would still get 2.4%. These are not hard and fast rules but in our MLS, it is the norm.
There are some companies out there touting a 3.9% listing commission. They still have to pay out the customary 2.4% to the buyers broker/company which means they are only left with 1.5% on the listing side. That 1.5% still has to be split between the company and the individual broker. Im not sure how these types of discount companies make enough money to keep their doors open, but thats not really my problem to worry about.
In other parts of the country they do a 50/50 split between the companies, and even in our MLS, some companies elect to do a 50/50 split.
Both the listing company and the buyers brokers company are paid at closing out of the monies promised in the listing agreement. Inside of each company the monies are split up even more.
If the company is a national company (like Century 21, Re/Max, Coldwell Banker, etc.) then the national company takes a franchise fee off the top. Then the local company takes a portion and the individual broker is left with the remaining portion. This last split is unique from company to company and can be unique from broker to broker. It all depends on that companys policy and the specific arrangement that broker has with that company. When I am doing a listing presentation I jokingly make the comment that after everyone gets their piece of the pie, I am left holding some crumbs.
I hope this explanation helps you to better understand how real estate commissions work.
When you are selling your home and list it with a REALTOR, that broker is your listing agent and that real estate company is your listing company. Most real estate companies charge a fee (commission) to list your house and that fee is usually a percentage of whatever the house eventually sells for. In most cases, nothing is paid upfront. The commission is paid at closing and usually runs anywhere from 3.5% to 7% (with the industry average running between 5% and 6%.)
The commission paid by the seller to list and sell their house is used to compensate both the listing company/broker and the broker representing the buyer. Therefore, buyers dont pay anything to the broker working for them. In other words, it doesnt cost the buyer anything to have a broker working for them to help them find and close on a property. The buyers broker/company is compensated out of the commission fee already promised by the sellers when their property was listed.
In our MLS there is an unwritten rule that the buyers broker/company will receive at least 2.4% of the sales price at closing. If the listing agreement was for 6%, that means the listing company would get 3.6% and the buyers broker/company would get 2.4%. If it was a 5% listing, the listing company would get 2.6% and the buyers broker/company would still get 2.4%. These are not hard and fast rules but in our MLS, it is the norm.
There are some companies out there touting a 3.9% listing commission. They still have to pay out the customary 2.4% to the buyers broker/company which means they are only left with 1.5% on the listing side. That 1.5% still has to be split between the company and the individual broker. Im not sure how these types of discount companies make enough money to keep their doors open, but thats not really my problem to worry about.
In other parts of the country they do a 50/50 split between the companies, and even in our MLS, some companies elect to do a 50/50 split.
Both the listing company and the buyers brokers company are paid at closing out of the monies promised in the listing agreement. Inside of each company the monies are split up even more.
If the company is a national company (like Century 21, Re/Max, Coldwell Banker, etc.) then the national company takes a franchise fee off the top. Then the local company takes a portion and the individual broker is left with the remaining portion. This last split is unique from company to company and can be unique from broker to broker. It all depends on that companys policy and the specific arrangement that broker has with that company. When I am doing a listing presentation I jokingly make the comment that after everyone gets their piece of the pie, I am left holding some crumbs.
I hope this explanation helps you to better understand how real estate commissions work.
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