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Real Estate Commission: Who gets what and who pays who?

Monday, April 17, 2017   /   by John Murdock -- CityScapeMetroGroup

Real Estate Commission: Who gets what and who pays who?

Selling a house involves a trinity: buyer, seller, and Realtor®. The buyer gets a new home, the seller gets to cash a big check, but what does the Realtor get? A commission, of course! (As well as the satisfaction of a job well-done.) There's an awful lot of confusion about this all-important fee, from who pays it to exactly how much it is. Here's everything you need to know, plus how to negotiate a Realtor commission. Yes, it's possible!

What is a typical Realtor commission?

A common misconception when it comes to Realtor commissions is that there is a standard percentage within the real estate industry. In truth, there is no common price. That would be price-fixing, which is illegal in most industries, says Maryland Realtor Malcolm Lawson.

In many states, however, there is an average prevailing fee of about 6% of a home's final sales price. If a Realtor sells a vacant lot, the commission is usually higher—anywhere from 10% to 20%—because selling land takes longer and involves more marketing dollars.

Who pays a Realtor's commission?

Sorry, home sellers: You're generally the ones paying the entire commission, which goes to your listing agent. From there, the listing agent throws a portion to the buyer's agent. Meanwhile, the home buyer pays nothing. (Remember, sellers: You were in those lucky shoes at one point.)

Do Realtors earn a salary in addition to a commission?

Realtors usually don't earn a base salary; they work only on commission.

Let's do the numbers: Say you're the home seller and your Realtor charges you a 6% commission to sell your $200,000 home. He then has to split that 6% ($12,000) with the buyer’s agent, so that usually leaves your Realtor with 3% ($6,000).

Next, your Realtor then has to share a portion of his 3%—anywhere from 25% to 40% ($1,500 to $2,400)—with his brokerage office. At the end of the transaction, your Realtor may end up with as little as 60% of the 3% commission, which ends up amounting to $3,600.

From this fee, Realtors usually pay for their own advertising and marketing, insurance, and business license. Additionally, commissions are paid only when a home's title transfers. That means an agent may work with a seller for many months—and through many offers—before getting paid.

Are commissions negotiable?

Commissions are always negotiable; that’s the law.

"A home seller can negotiate when they have a property that is move-in ready, updated, or high-end," says Kevin Lawton, a Realtor with Coldwell Banker in Bordentown, NJ.

Whether or not sellers can negotiate what they think is the perfect rate is another matter, says Denise Supplee, a Realtor in Pennsylvania and co-founder of SparkRental.com. Keep in mind, you get what you pay for. If a Realtor easily agrees to a lower commission than is usually charged, how great will that Realtor be at negotiating in general?

As a seller, you want a Realtor who can broker the best sale price and terms. So a Realtor who caves quickly on his own pay may also cave when you're counting on him to fetch you the best possible price. Plus, for many Realtors, the marketing dollars for a property come from their commission, so a lower fee could mean less advertising for your property.

What if the Realtor is representing the buyer and the seller?

Another instance when a lower commission might be feasible is if one agent is representing both the buyer and the seller, a scenario known as "dual agency." Not all states allow dual agency, and even in the ones where it's OK (provided it's disclosed to all parties), many agents don't go there because it puts them in a sticky position of having to work for both the seller and buyer.

Think about it: In the same way you'd want your own lawyer at trial, don't you want your own agent fighting in your corner?

Still, there are cases when dual agency makes sense—like, say, when a house is sold between people who know each other and just need someone to process the paperwork. Since a deal like this usually takes less time than usual, this opportunity is ripe to negotiate a lower commission. After all, by working alone, the Realtor almost doubles his money.

All told, if you aren't sold on the exact commission fee quoted, ask the Realtor to explain what goes into that fee. He should provide you with a list of the work he'll perform, a marketing and advertising schedule, and a probable length of time to get the property sold. Interview a few different Realtors and compare what each is offering. From there, you can (politely, respectfully) ask if there's any wiggle room on the commission. Be nice about it, and most agents won't take offense. The worst case is they say no; at best, you might be able to score a bit of a deal.

Article provided by: Realtor.com |  Margaret Heidenry | Apr 17, 2017

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