Paying Real Estate Commissions
The seller usually pays the real estate agent commissions, which are taken from the proceeds of the sale and distributed after the close of and by Escrow.
Escrow cuts the checks to the appropriate real estate offices, not to the individual agents, and sees that they are delivered.
Commissions are negotiable — before listing agreements and sales contracts are signed, not at closing. The percentage typically is set by local custom and the strength of the market. Some buyers hire their own exclusive agent and the seller either does not pay that agent a commission or their commission is negotiated as part of the sales contract.
Whatever the arrangement, commissions typically consume between 5 and 7 percent of the sales price. For example, if your home sells for $250,000 and the commission is 6 percent, that’s a $15,000 pot of money. That may sound like a fabulous payday for the real estate agents, although the loot doesn’t go to one person.
The commission is split. Usually, the seller’s agent's brokerage gets half and the buyer’s agent's brokerage half, although other splits are possible.
Using our example of a $250,000 home sale, each brokerage would receive $7,500. However, there are others with a call on part of the commission.
If the agents work for a broker, the broker will get 30 to 50 percent of the agent’s commission. If it’s a 30 percent split, the agents are down to $5,250 each (minus what they spend for things like marketing, newspaper ads, flyers, internet ads, which comes out of their own pockets - along with many other expenses of the daily operating costs of their real estate business).
Commissions are the bulk of the seller’s closing costs and the reason many homeowners explore selling without an agent. If they are successful, they’ll have either no commissions to pay, or only one — the buyer’s agent — if they agree to pay the buyer’s agent. The percentage to be paid also must be in the contract.
As real estate practices are changing, some sellers are hiring agents for specific services rather than the traditional full-service contract, which means they also are negotiating to pay less than the standard commission. (See What a Seller’s Agent Does.)
Whatever the arrangement, the amount the seller is paying for commissions will be shown on the settlement cost statement at closing.
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