This is the second post in a two-part blog series on how real estate commissions work. To read Part 1 in this blog series, click here.
So the sale is completed, and it’s time for both the buyer agent and listing agent to be paid. What happens next? By law, a real estate agent can never receive a commission check directly – rather, checks are paid to each of their brokerages, who pay their agents prearranged commission splits. In other words, each brokerage keeps a percentage of the commission that comes in as a fee for professionally supporting the agent and allowing the agent to practice real estate out of that brokerage. (The brokerage’s job is to monitor the agent in the performance of their duties and to help them in their professional efforts).
So, at the end of this hypothetical transaction, the listing brokerage receives a check for 3% of the sales price that it splits with the listing agent, and the buyer brokerage (technically called the “selling” brokerage, because they have helped sell the property) receives a check for 3% of the sales price that it splits with the buyer agent.
Commission splits between brokerages and agents are always negotiable. 60%/40% splits are fairly common (60% for the agent, 40% for the brokerage). So, using these numbers in our hypothetical scenario, the listing brokerage pays the listing agent 60% of their commission, and the selling brokerage pays the buyer agent 60% of their commission. Let’s break this down by the numbers. Assuming a $400,000 sales price, the listing brokerage receives a 3% commission, $12,000, which it splits with the listing agent who works out of the brokerage. The listing agent receives 60% of $12,000, which is $7,200. The selling brokerage also receives a 3% commission, $12,000, which it splits with the buyer agent who works out of the brokerage. The buyer agent receives 40% of $12,000, which, again is $7,200.
I know real estate commissions can be a confusing topic, so hopefully this blog post has clarified how they work.
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