A lot of people I talk to are surprised to learn how real estate commissions work, so I thought I’d write a post on the topic. In a standard real estate transaction, the seller pays the entire real estate commission. The total amount that the seller usually pays is 6% of the property’s sales price, although, like everything else in real estate, this number is always negotiable. For this example, however, let’s assume a seller commission of 6%.
Before I get into the specifics of how the commission is paid out, it helps to understand that there are two parties to every real estate transaction that take part in procuring the sale – the listing agent, and the buyer agent. The listing agent markets the seller’s home and represents the seller’s interests in the transaction, and the buyer agent helps the buyer find the home and represents the buyer’s interests in the transaction.
The 6% commission that the seller pays compensates both the listing agent and the buyer agent for their efforts in procuring the sale. When a listing agent accepts a listing, they advertise it on the MRIS (the local multiple listing service). The listing agent advertises a set commission that a buyer agent will receive when they successfully bring a buyer to the table. Again, this commission rate varies, but it's usually 3%. The key here is that the buyer agent commission comes directly out of the 6% commission that the seller is paying. For the sake of this example, let’s assume that the total amount that is paid to the buyer agent is half of that 6%, or 3% of the sales price.
To read the second post in this two-part blog series click here.
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