Real Estate Agent Commission Split Breakdown: Where Does the Money Go?
Real estate agent commission sometimes can be very misunderstood and some sellers may wonder what does a real estate agent do to earn his/her commission; where does the money go? The commission may seem very expensive, especially if it is considered an expense as opposed to a benefit. However if you see the benefits of using a full service agency, you will soon appreciate that it is the purchaser who really pays the real estate commission; being reflected in the sales price. Without the services of a Realtor and the Multiple Listing Service (MLS) which maximizes your property exposure to other agents and buyers, many private sellers have found the sales price to be not only less the commission but sometimes substantially lower than that. Savvy private buyers usually start from their best price, deduct the real estate commission they assume the seller has included in their asking price (otherwise why would the seller be selling privately in the first place) before they make their offer.
The same can be true if a seller tries to negotiate a lower commission. The money the seller perceives to be saving by paying a lower brokerage fee, is often lost because the property will usually sell for less; sometimes substantially less. By not offering fair compensation to co-operating realtors on the Multiple Listing Service (MLS) the seller often loses money, experiences a longer marketing time along with frustration and inconvenience. What should be more important, negotiating a lower commission or maximizing a higher sales price? Here are a few things to understand about the real estate commission and where the money goes.
The first thing that you need to understand is that the commission is usually split, between real estate brokers or real estate companies. If you are working with a real estate agent, the “Listing Agent” must, by law work for a licensed “Real Estate Broker.” The broker owns the business and hires the agent to represent them. When you list your property, the agency that lists it is known as the “Listing Broker.” When a buyer comes along and is represented by a “Buyer’s Agent,” that agency is known as the “Selling Broker.” When two brokers co-operate together to sell a property, they split the commission from the sale of the property. Both the listing broker and the selling broker share the commission.
Also an agency can represent both buyer and seller which is called an “in house” sale. In this case the commission would be shared between Century 21 Seller’s Choice inc, and both agents. An agent can also “double end” a real estate transaction when representing both the “Seller” and the “Buyer” of the property with proper disclosure. In this case the broker, Century 21 Seller’s Choice Inc. and the agent would receive a greater share of the commission. However, the agent has to do double the work and share double the expenses.
Broker vs Agent
When Century 21 Seller’s Choice Inc. receives the commission cheque, the amount received is split between the broker and the agent that worked on behalf of the client. The split could be one of the following; 70/30, 80/20 or 90/10. The agent that actually worked with the client would get anywhere from 70%, 80% or 90%, depending on the split structure agreed upon between the company and agent and the agents sales volume.
The agent from his/her split would have overhead expenses deducted from their share of the commission. Costs such as Gold Post signs, 10% franchise fees, advertising, photo copies, association fees, E & O insurance, CPP (double), health insurance, postage, income tax etc. From the agents net then comes the cost of purchasing or leasing an automobile, insurance, gas, tires, maintenance etc. Also the agent is responsible for his/her own computer, cell phones, long distance charges, stationary etc.
Why does the broker that employs the agent get a portion of the commission? Because they are taking on a certain amount of risk by employing the real estate agent. Brokers have to be licensed and regulated under the laws of the province of Newfoundland & Labrador before they can hire real estate agents to represent them. Brokers also have to manage and maintain trust accounts and are accountable for the agents they have hired. Agents also have to be licensed. It is illegal for a real estate agent to represent a buyer or seller in a real estate transaction without a real estate broker.
The broker also has to provide an office for the person to work in. They spend a certain amount of money advertising for the agency, and they pay for other expenses as well such as, office leases, websites, light/heat, telephone service, computer equipment, support staff employees etc. Century 21 Seller’s Choice Inc. also spends their time and resources for weekly training programs so their real estate agents can provide the best service possible for their clients.
The commission might seem like a lot of money, however now you can see the real estate agent doesn’t get to keep all the money. An experienced agent working for a full service company such as Century 21 Seller’s Choice Inc. is usually well worth the service fee. The benefits more than pay for themselves, producing less inconvenience, a quicker sale, fewer problems and a higher sales price. By compensating an agent fairly when selling your property, you can maximize your profits.
Earning the right to be your Realtor® Consultant for life,