There is general confusion among property buyers and sellers where they do not know who pays the commission to the real estate agent.
If you want to understand how real estate advisors earn, then you have ended on the right page. It is important for both the buyers and the sellers to know about the commission process through which real estate agents earn.
The Commissions For The Real Estate Agents
The commission for the real estate agents or advisors is the financial incentive that the agent gets for helping you sell or buy a new home.
There is a difference between the job description for a real estate agent and a real estate broker. The latter is one who has achieved an advanced level of training. Brokers can also operate as a private entity but the real estate agents work under a broker.
If there is any fee or commission that needs to be paid to the real estate agent then it needs to pass through a broker. The real estate broker is responsible for paying the agent according to the agreement or the deal signed on a property.
How Do Real Estate Brokers Pay the Real Estate Agents
The exact percentage of the commissions will vary from case to case. Real estate agents who have just started their careers usually get 30% to the 40% of the total amount received by the real estate broker.
However, the broker may subtract other charges before paying the real estate agent such as the fee for marketing, administration costs, or the fee for any relocation services.
On the other hand, an experienced real estate agent may even get a full 100% of the commission amount. The rest of the agents will fall in between these amounts.
The Fee & Charges for the Listing Agents
There are many kinds of listing agreements that are signed between a seller and a buyer. The most frequent of these agreements is the one where the broker gets the exclusive rights to advertise a new home for sale.
If the seller brings the buyer to the table, then the seller pays the commission amount to the broker. The exact amount of this commission is a certain percentage of the selling price of the property. This amount is divided between the listing broker and the person who brings the buyer to the table.
How do real estate agents get paid?
There is a debate over who pays the real estate agent. Usually, the buyer has the responsibility of paying the agent but this can be argued. The commission of the real estate agent is a percentage of the selling price hence, if you are on the buying end, you can add a real estate agent’s commission to the cost of your mortgage.
There are two ways this commission system works.
Homebuyers pay the commission to the agent
According to the majority of the listing agreements, the seller does not have the responsibility of paying the commission to the broker.
The selling costs are times decreased to show the amount that the buyer is paying in total. The seller can also pay this commission to the buyer and the buyer then pays the broker.
The Seller Pays the Buyer’s Commission
In the agreement that the buyer signs with the broker, the listed broker, and the agent are the ones who represent the buying party. Then the charges of the broker are paid by the selling party.
However, there are certain agreements that have additional clauses stating that the broker will be compensated less if the amount paid by the selling party is also less.
Let’s take an example if a listing pays the broker a small percentage of the selling price of the house as a commission, but the fee of the broker is higher than the commission then this difference can be compensated by the buyer. But the broker can choose not to take the difference.
In the End
If you analyze the credibility of a real estate agent according to their commissions, then it is a wrong approach. Agents cannot be solely judged on commissions. Experienced agents charge higher amounts than the ones who just stepped foot into this field.
If you are from the buying party, you will not be obligated to pay the agent commission directly so even if a discount is offered, it may have no effect on you. Some agencies even pay the buyers to increase their business but that is rare.
All in all, it does not matter on which end of the deal you are at, whether buying or selling, you must stay aware of all the terms listing down the commission clauses on your agreement. It is best to ask your agency beforehand.
With more than 35 years of business experience in real estate, construction, professional sales and financial management and new home for sale. John has found a formula for success that defines his career. “Success is doing the work you want, with the clients you want, for the money you want, while still making time for the life you want.