How Do Real Estate Commissions Work?

Real estate companies or agents get paid by both sellers and buyers when the deal closes. But do you know who has to pay commissions? It might be the most asked question to a realtor in their first meeting with a seller and buyer. Because as a seller they have to spend money on staging, insurance, marketing, and other maintenance works. On the other hand, a buyer has to be ready with the cash and down payment for catching their dream house. So thinking about paying a commission to real estate agents is essential for them.

It is also important to fix a commission rate before they start showing you the listings. Based on the clients, where they form, and their services, real estate agents are paid in different ways. The most followed method of paying real estate agents on deal closing is some percent of the sale price after the transaction. A national report says that 80% of sellers pay for their realtor’s commission.

What is a real estate commission?

In the real estate business, many services are involved like lawyers, accountants, brokers, and agents. In which the lawyers and accountants charge their clients by the hour while the real estate agents and brokers work for a commission rate which is a certain percentage of money that a deal is finalized with. The commission rate will be paid to the agents after the full transaction of money to the seller.

After every successful deal closure, the real estate agent gets this money. You have to note that only a successful deal will earn them this money. That’s why they work hard to make every deal successful, otherwise, their time and energy also go unused.

What is the percentage?

For the residential home sales, typically the sellers pay from 5% to 7% of their sale price as the real estate commission. Next, the money is shared between realtors, brokers, or companies that represent the seller and buyer. If there is a broker involved, each agent will get a part of the commission rate from the brokers.

Why pay the real estate commission?

On a usual note, sellers pay a percentage of their sale price as a commission when closing the deal. So a seller always has this factor in mind to pay for commission and ask for sale price. They also include the factor in case of negotiations.

But there are some owners who advertise that they can only pay 1.5% of the buyer agent’s commission which explains the buyer has to fix up the remaining or the agent has to reduce their take up.

Can a seller negotiate commission?

Usually, the seller mentions the commission rate when they meet with an agent. This rate is later split by buying and selling agents. As a seller, you can negotiate the commission when you list with an agent before you market your house or property.

You can decide on the agent commission after a discussion of knowing their services, methods, and ideas they have for you to sell your house. It should be a healthy and open conversation between a seller and agent.