How Do Real Estate Agents Get Paid; Get Answers to Your Questions
Real Estate Commission
Commission is the word used to describe what real estate agents earn. Real estate agents make money through commissions that are gotten from the percentage of a property selling price.
On rare occasions, real estate agents are paid an agreed upon fee. However, most times, the real estate agent gets his or her commission from the percentage of the property’s selling price.
How Do Real Estate Commissions Work?
When a property is put on the market for sale, the seller and the listing broker agree upon a commission which will be put in their contract. Also, keep in mind that the commission is always negotiable.
In the US it is a violation of the federal antitrust law for real estate brokers and real estate agents to set uniform commission rates. Hence, the reason why negotiations are allowed in real estate commissions.
On average, real estate commission rate has always ranged between 5% and 6% of the property price. Keep in mind that this commission can be higher or lower depending on the market conditions.
Furthermore, the sellers are usually responsible for paying the commission. However, in some cases the buyer and the seller have an agreement to split the commission.
So, what most sellers do is that they factor in the commission into the asking price. Therefore, you could say that buyers pay part of the commission directly or indirectly.
This commission doesn’t always go directly to the real estate agent. It is paid to the listing broker and the buyer’s broker. However, the brokers and their agents already have an agreement on how commissions will be split.
In some cases, it is split 50/50 between the broker and the agent. However, it is not a fixed figure; it varies between brokers.
How Are Real Estate Commissions Split?
Commission from any real estate transaction is not only split between the two brokers. The commissions are usually split four ways:
- Listing broker: This is the broker who manages the listing agent in charge of the sales of a particular property.
- Listing agent: This is the agent working with the seller.
- Buyer’s agent: This is the agent that represents the buyer in the transaction.
- Buyer’s agent broker: This is the broker representing the buyer’s agent.
Step-by-Step Process on How Commission Payments Work
Here is a quick preview of how transactions move in the real estate market. Also, this is how the commission works its way to the real estate agent in every real estate transactions.
Step 1: The Broker and Seller’s negotiation
firstly, the seller finds a licensed broker to work with in order to sell their property the right way. At this point, the broker who the seller reaches out to is known as the listing broker. This broker will negotiate a commission with the seller depending on market conditions. After the seller and broker agrees on a commission, the broker puts the word out that the property is on sale through real estate advertising channels.
Step 2: Get an Offer for The Property
Before we get into the purchase part, let it be noted that the broker listing the property provides an agent who will work with the seller during the transaction.
Moving forward, at this point the buyer’s broker will contact the listing broker in order to move forward with the transaction.
Lastly, the listing broker is obligated to inform the buyer’s broker about the commission split before they go forward.
Step 3: Property Sale Complete
This is after every necessary document has been signed and the funding from the buyer has gone through. The commission fee is immediately taken out of the sellers proceeds and sent to the liating broker.
Step 4: Brokerages Split the Commission
After the transaction, the listing broker and the buyer’s broker split the commission based on what has been agreed before.
Step 5: The Brokers Split the Commission with Their Agents
After the commission has been sent to the individual broker, both brokers split the commission with their agents. The amount of money given to the agent depends on the agreement they had with their brokers on how commissions will be split.
