Oct 11, 2021

Understanding Residential Real Estate Commissions

In most parts of the United States, standard real estate commissions to sell a home are usually between 5 - 7%.  So, when listing a home for sale if working with a licensed real estate agent who is affiliated with a broker in the area, the commission rate will be indicated in the listing agreement.  In many cases, the listing agent will end up splitting the commission with an agent representing the buyer in the transaction.   In some cases if the listing agent also sources the buyer, he or she can earn both sides of the commission.  

But that is not the end of the story.  The commission is ultimately paid to the broker, who may also get a cut of the commission based on the splits agreed to between the real estate agent and the managing broker.  High producing agents tend to keep more of what they earn.  Less experienced agents usually end up paying the managing broker a bigger split.   

So if the commission is 6%, the first split occurs between the listing agent and the buyer's agent so 3% on each side.  Then based on the arrangement they have with their managing brokers, the commission is further split.  It is important to recognize that if a sale is not closed nothing is earned by any agent.  The real value the real estate agents bring to the table is in making sure that a sale does not fall out because without a closing, they earn nothing.  As a result, once a contract of sale has been executed by the seller and the buyer, the agents stay very close to the transaction to make sure that the sale closes.  Commission is a very powerful motivator specific to attention to detail and dealing with any impediments to closing the sale. 

Real Estate agents earn their money.  Their job is to negotiate a price a willing seller will accept from a willing buyer.  That sounds simple; but a lot can happen during a transaction to kill the deal.  The real estate agent is there to make sure the deal closes to everybody's satisfaction.  Discount brokers are not quite as motivated, since they are not earning much if a sale does happen.  They work on very high volume in the hopes that a good percentage of the sales they manage will close.