What is Real Estate Commission?

Do you know how real estate agents get paid? Unlike other industries where employees are paid a salary, most agents are paid via a real estate commission in the real estate industry. Commissions paid can vary from company to company and agent to agent. Real Estate commission fee structures are highly variable.

Lots of people ask who much is a real estate commission when selling a home?

The amount of commission is usually 5% to 6% of a home sale price. Typically, but not always, the commission is split between the listing company and the selling company. For example, if the total commission were five percent, each company would receive 2.5%.

If there is only one real estate company involved, they will keep the entire commission. Commissions are paid when the closing takes place on the property. Depending on the price of the property, a commission could be large or small.

Once commissions are split between the listing agency owner, the listing agent, the buyer's agency owner, and the buyer's agent, commissions don't seem as substantial.

Real Agent's Commission is Negotiable

While the commission fee structure can become commonplace in specific locations, it should be made abundantly clear that real estate commissions are negotiable.

It should also be noted that an excellent real estate agent works hard for their money.

You can negotiate a commission rate, but bear in mind that part of that fee covers the advertising budget for your property sale. Sometimes a lower commission structure than all of the homes you're competing against could be shooting yourself in the foot.

You want real estate agents to be excited about selling your home. Lower what an agent makes could hurt you in the long run, especially if the real estate market is very competitive.

What Do Real Estate Commission Fees Cover?

The real estate agent commission covers all the services provided during the sale of the home. Some of these include the professional presentation of the marketing and advertising of the house. Everything from marketing brochures, signage, and internet marketing is paid for by the real estate professionals.

You are also paying for the immense amount of time and energy it takes to procure a buyer and then see it all the way through the stages of the sale.

From negotiating an offer, attending a home inspection, meeting with an appraiser, and answering daily questions among the parties are part of an agent's job.

If your house does not sell in some real estate contracts, you may still be required to pay some marketing and advertising fees. Make sure to read all the fine print carefully before signing your contract to sell.

How is The Commission Divided Between Agents?

If two agents are involved, the commission is usually split 50-50 but not always. If a house fails to sell, real estate agents won't be paid for their time. This is the risk/reward for being paid with commissions. Very few real estate agents make any kind of salary.

If you are a seller who has signed an exclusive agency agreement, it may be hard to get away from the real estate agent.

An exclusive agency agreement should always be time-limited. Typically, real estate contract periods range from 3-6 months. For luxury homes that take a lot longer to sell, it is not uncommon to see contract dates extended to a year.  If the property does not sell during that time, you can take the listing away and give it to another agent.

It is always better if contracts are kept clear and simple, and before you sign one, if there are any areas you are unclear of, run them past your attorney.

What About Flat Fee MLS?

You may hear about what is referred to as flat fee MLS when selling your home. Flat fee MLS is much like it sounds. A company will list your home in MLS for a small fee, and that is it. They don't provide the services a traditional real estate agent would.

You will not have any representation. Sometimes, consumers choose to go with a flat fee agency to save the real estate commission's listing side. Most flat fee MLS companies charge between $200 to $800 to get your house listed on the MLS.

There are pros and cons of going with a flat fee MLS service. While the MLS is a valuable marketing tool, so is all the counseling and advice you get from a top real estate professional. Think long and hard before choosing flat fee MLS.

What Happens With Dual Agency?

A dual agency agreement occurs when the Realtor represents both the buyer and seller. In order for it to be legal, it must be disclosed to both parties. Some states have outlawed dual agency agreements, and with good reason.

When you allow a single-agent dual agency, the person you hired to sell your home becomes a neutral party, no longer able to represent your best interests.

You are paying your real estate agent thousands of dollars. Why in the world would you want them to become a neutral party not able to advise you? You wouldn't! Don't be fooled by agents who don't explain the downsides of dual agency.

Many agents will offer to reduce their commission if you agree to accept dual agency. Don't fall for this ploy.

Is Comparing Real Estate Agent Commission Important?

When choosing your real estate agent, you will be given pages of handouts, including the commission structure they charge. It is a good idea to sit down and sift through a few different agents' comparisons before making your final choice of agent. Choosing based on the commission is usually an excellent way to make a poor choice. Don't let the commission be the factor in selecting an agent.

This is important, as you often feel very alone when undertaking the sale of your home. If you chose the wrong agent, it could all end badly. Many consumers have experienced the 'wrong agent' in the past.

Final Thoughts on Real Estate Commission

The main thing when selling is to make the right choice of an agent. Read all your contracts, disclosures, and other information carefully. If there is language in the agreement you don't understand, run it by your attorney.

Once you have done this, you will be ready to sign the contract and sell the house. The right agent will give you the support, expertise, and guidance you need to get the deal done.

Hopefully, you have gotten something out of this guide on real estate commissions.

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