Most home buyers and sellers work with a real estate agent, and the agent charges a commission. How much is the commission, and who pays it? The answer in both cases is: It’s negotiable. You’ll set the terms in the sale contract.
Often the buyer and the seller each have their own agent, and the commission is split down the middle between the two agents. (Read more about the types of real estate representation.)
Two important points about commissions:
1. Commissions come out of the sale proceeds. The fees aren’t added to the home’s purchase price. So, if a house sells for $200,000 and the commission is 5 percent ($10,000), the net proceeds (barring other closing costs) are $190,000.
Usually the seller pays the commission, unless buyer and seller negotiate a split or agree to the buyer assuming the full amount. The seller should factor the commission into the asking price.
2. Commissions are paid to brokers, not directly to agents. Every agent must work for a broker; they can’t act independently and are not paid directly. If the transaction includes both a buyer’s agent and a seller’s agent, each will be paid by their respective brokerage.
Brokers set the commission they charge for houses sold through their brokerage. Traditionally, the commission is 5-8 percent of the sales price, but again, that amount is negotiable.
Brokers keep a portion of that fee. The agent’s share, called the commission split, could be as low as 30 percent of the commission for new agents or as much as 75 percent (or more) for veteran or highly successful agents.
The Seller’s Agent’s Commission
Generally, brokerages demand the exclusive right to sell a house for a certain number of months. During that period, the contract usually states that the seller’s broker (also known as the listing broker) will receive the full commission if a contract for the sale of the house is signed, regardless of the circumstances of the sale. The justification for this is that the listing agent’s brokerage spends time and money advertising, listing the property, preparing the house for showing and otherwise promoting the sale.
The Buyer’s Agent’s Commission
The buyer’s agent (also known as the selling agent) works with home seekers. Common practice is that the seller’s broker shares the commission with the buyer’s broker, but it’s not always an equal split. For example, a seller might agree to pay 7 percent total commission, to be divided as 4 percent to the listing broker and 3 percent to the selling broker. There are no rules on the split. If the same brokerage represents both buyer and seller, that brokerage receives the full commission, and the buyer’s and seller’s agents will get a cut according to their agreement with the broker.
An Example of Real Estate Agent Commissions
Home owners ask agent Rick of Superlist Brokerage to sell their house for $200,000. They agree on a 7 percent commission.
Shelly, a buyer’s agent at Bigbuy Brokerage, brings his clients to see the house. They purchase it for the asking price.
The total commission will be $14,000, taken out of the sales price at the closing. So, the net proceeds from the sale are $186,000. The brokerages have agreed to divide the commission, $7,000 each.
Rick, a highly successful agent for Superlist, receives 75 percent of the brokerage’s $7,000 commission, or $5,250. Shelly, a beginning agent, receives 30 percent of Bigbuy’s $7,000 commission, or $2,100.
Moshe Pollock wrote this article.