When buying or selling a home, most people work with a real estate agent. These professionals assist in finding the right property, negotiating the best deal, and handling the paperwork involved in the transaction. In exchange for their services, real estate agents are paid a commission on the sale price of the property. In this article, we’ll take a closer look at how real estate commissions are paid out.
Commission Structure
Real estate commissions are typically calculated as a percentage of the sale price of the property. The exact percentage can vary depending on the area and the specific agreement between the agent and the client. In most cases, the commission is split between the seller’s agent (listing agent) and the buyer’s agent (selling agent). For example, a 6% commission may be split evenly between the two agents, with each receiving 3%.
Seller’s Agent Commission
The seller’s agent is responsible for marketing and selling the property on behalf of the seller. They typically list the property on the local MLS (Multiple Listing Service) and other online platforms to attract potential buyers. When a buyer makes an offer on the property, the seller’s agent negotiates the deal and handles the paperwork involved in the transaction.
Once the sale is complete, the seller’s agent receives a commission from the sale price of the property. This commission is paid by the seller’s proceeds at closing. For example, if a home sells for $300,000 with a 6% commission, the seller’s agent would receive $9,000 (3% of $300,000).
Buyer’s Agent Commission
The buyer’s agent is responsible for finding properties that meet the buyer’s needs and preferences, showing the properties to the buyer, and negotiating the purchase price and terms on behalf of the buyer. Once a purchase agreement is reached, the buyer’s agent helps the buyer navigate the process to closing.
Like the seller’s agent, the buyer’s agent also receives a commission from the sale price of the property. This commission is paid by the seller’s proceeds at closing and is typically split with the seller’s agent. For example, if a home sells for $300,000 with a 6% commission split evenly between the two agents, the buyer’s agent would receive $9,000 (3% of $300,000).
Often times, both sides of the transaction have to pay brokerage fees out of their commission. Those who are part of a team typically have splits and share a portion of the profit with their team.
Who Pays the Commission?
In most cases, the commission is paid by the seller. The commission is typically deducted from the proceeds of the sale at closing. For example, if a home sells for $300,000 with a 6% commission split evenly between the two agents, the seller would pay $18,000 (6% of $300,000) in commissions.
In some cases, the buyer may agree to pay the buyer’s agent directly for their services. This is specified on the agency agreement and it specifies the commission amount and payment terms. However, this arrangement is relatively rare, and most buyers do not pay their agents directly. The agency agreement typically lists the agent will be paid out of the seller’s proceeds.
Conclusion
Real estate commissions are an essential part of the home buying and selling process. They compensate the agents for their time, expertise, and marketing efforts. By understanding how commissions are paid out, buyers and sellers can make informed decisions about working with a real estate agent and negotiating commission rates.