From whom can a salesperson receive a commission?
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Many home buyers and sellers don't understand exactly who pays the real estate agent involved in the transaction. To understand who pays real estate commissions—whether it's sellers or buyers or both—take a look at how real estate agents are paid and how they share cooperating commissions. Show
Key Takeaways
How Real Estate Commissions WorkA real estate commission is the amount that agents or brokers are paid for the work they do in buying or selling your home. Real estate agents work for a real estate broker. A real estate broker typically has more training than an agent. Brokers can work independently or start a brokerage, while real estate agents are required to work for a broker. All fees paid to a real estate agent must first pass through a broker. Only a real estate broker can pay a real estate commission and sign a listing agreement with a seller. How Brokers Compensate Real Estate AgentsCommission divisions vary. New agents can receive less of the total commission received by the brokerage than experienced agents do. Other fees may be deducted from that amount such as advertising, sign rentals, or office expenses. Top-producing agents might receive 100% and pay the broker a desk fee. Everybody else falls somewhere in between. Listing Agent FeesThe most common type of listing agreement between a seller and their agent gives the agent's broker the right to exclusively market the home. In return for bringing a buyer to the table, the seller agrees to pay a commission to the broker. Typically, this fee is represented as a percentage of the sales price and is shared between the listing broker and the broker who brings the buyer. Co-Brokerage SplitsDivisions of fees among brokers are not always fair or equal. In a buyer's market, sellers might want to consider asking the broker to give a larger percentage to the buyer's broker. In a seller's market, the buyer's broker might receive less, and no set formula exists. Most divisions of commission are locally based. In some parts of the country, it is very common for a listing agent to make more than the buyer's agent. Be sure to ask about the customs in your area. Who Pays the Real Estate Agent?It can be argued that the buyer always pays the commission. Why? Because it's typically part of the sales price. If you are a buyer, you can combine closing costs like commissions into your mortgage. Here are ways commissions are typically structured. The Seller Pays the Buyer's CommissionUnder a buyer's broker arrangement, the named brokerage and agent represent the buyer. The fee paid to the broker is most commonly paid by the seller. Some buyer broker agreements contain clauses that will compensate the brokerage for the fee it is due less the amount paid by the seller. For example, a cooperating listing might offer to pay a broker a smaller portion of the sales price, but the brokerage charges fees that are a higher percentage. The difference could be paid by the buyer if the broker chooses not to waive the difference. Buyer Pays the Commission DirectlyThe seller is not obligated under most listing agreements to compensate the listing broker for more than the listing side's portion of the commission. Often, sales prices are reduced to reflect the amount the buyer is paying. NoteIt is considered insulting to call an agent to list your home and immediately ask if the agent will discount their commission. The Bottom LineAgents cannot be solely judged on commissions. For example, top agents often charge more than newer agents. If you are a buyer, you do not directly pay the commission, so a discount would not affect you. There are a few agencies who offer to pay buyers to lure their business, but that's unusual. In some cases, agents are seeing a reduction in the amount of commission paid to buyer's agents. The commission is often not split 50/50 between listing and selling agents, and many listing agents make more than the buyer's agents. Ultimately, whether you're buying or selling a home, make sure you're clear on your agent's commissions and how they work. In most cases, the seller pays the commissions out of the home's sales price, but that can vary. It's best to ask if you're uncertain. Frequently Asked Questions (FAQs)What is a fair commission for a real estate agent?Commissions vary by market conditions and geographic regions, so there isn't a lot of government data on the issue. The government's last thorough report on commission rates (back in 2009) shows an average broker commission of 5% or 6%, but each brokerage will decide how much of that to share with agents. The government keeps better data on overall real estate agent pay, and in 2021, the median real estate sales agent salary was roughly $62,010. Who sets real estate commission rates?Can agents collect buyer commission?An agent can only collect commission from one party, either the Seller or the Buyer. In the case of a new launch, the Developer will pay the Agent, hence the Agent is not allowed to collect commission from the Buyer.
Who determines the amount of commission?The contracts that buyers and sellers have with their agents determine the agents' commissions. The real estate fee is often split evenly between the buyer and seller agents, although a contract could stipulate that one agent receives more of the commission than the other.
Can estate agent collect commission in cash?Usually the agent will collect commission in cash or cheque first, and then he or she will submit to the office so that the client can be issued with an invoice plus receipt too.
What is a commission in selling?Sales commission is a key aspect of sales compensation. It's the amount of money a salesperson earns based on the number of sales they have made. This is additional money that often complements a standard salary.
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