What You Should Know About Real Estate Agent Commissions
Many people aren’t really sure how commissions work when it comes to real estate. So here’s what you should know about real estate agent commissions.
It is customary on a residential real estate transaction for the seller to pay the commissions for the Listing Brokerage firm. The Listing Brokerage firm is the one representing the seller. Then the Listing Brokerage pays a co-op commission to the Selling Brokerage firm (representing the buyer). The terms of this are clearly written in the Listing Contract that you will sign with the Listing Brokerage firm and the Listing Agent. The co-op commission is one of the many fields shown in the Multiple Listing Service (MLS) but may not be visible to the general public.
Expectations may be different and REALTORS® are sensitive to their adherence to uphold ethical standards, as well as laws against price fixing and collusion, but commissions are typically six percent. This is normally split three percent to the Listing Brokerage, and three percent to the Selling Brokerage. The Title Company disburses the commissions at closing and pays the Listing Brokerage firm. Then the Listing Brokerage firm simultaneously pays the co-op commission to the Selling Brokerage firm, and then the Selling Brokerage agent. The brokerages take their percentage (usually 1/3 of the earned commission), and then the remaining 2/3 goes to the seller’s agent and the buyer’s agent (then the IRS gets their 1/3).
Commissions Are Negotiable
What you should know about real estate agent commissions is that they are negotiable. However, that doesn’t mean it’s a good idea to negotiate. Some sellers believe they will benefit by negotiating a reduced commission with the listing agent. The reality is the listing agent and the selling agent will be splitting the total commission. The selling agent is the cooperating agent who brings the buyer. Given the opportunity to choose, there are some agents who may decide not to show your home over others because they see a reduced commission rate in the MLS.
A variable commission is a reduced commission if your agent brings the buyer. Similarly to negotiating this is a way to reduce the commissions paid. The reality is you are hiring your agent to market, list and sell your home. You want your agent to bring buyers to your home for showings and hopefully submit an offer. You do not want to disincentivize your agent from bringing buyers to your home. There is typically a “variable commission” field in the MLS, and this may discourage other agents from showing your home. Because if their buyer submits an offer and the listing agent’s buyer submits an identical offer, you will take the listing agent’s buyer offer because it will result in a larger net to you. So what you should know about real estate agent commissions is that variable commission is not always a good idea!
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Coldwell Banker Mountain Properties