There are a whole lot of people involved in the sale of a home, and more than a single real estate brokerage in most cases. In this article we’ll give you an overview of the real estate commission structure and the participation of all of the parties involved. This isn’t how everyone does it, and there are alternative methods of compensation for real estate agents. However, this is the most prevalent structure for compensation of real estate brokerages and agents.
We’re going to use a common percentage for commission, but it is not “set” and can vary significantly among different brokerages, so there is a wide divergence in the total commission percentage charged around the country. However, for this article we’ll use 6% as the full commission on a home that ends up selling for $200,000. Here’s how that 6% is earned and dispersed.
The Listing Brokerage: when a homeowner is ready to sell, they list with a real estate brokerage and the total commission to be paid is agreed-upon. In this example, our 6% is contracted in the listing agreement to be paid to the listing brokerage when the sale is successfully completed.
The MLS and Commission Sharing: the listing brokerage then places the home into the Multiple Listing Service database so other member brokers can access the listing details and hopefully bring a buyer for the home. The MLS is a commission-sharing arrangement, and the most common arrangement is to offer the brokerage that brings a successful buyer the sum of 50% of the total 6% commission. In this case, that 6% is a total of $12,000. So, the brokerage that brings the buyer will receive $6000 after closing.
The Brokerage Agent Split: in both the listing brokerage and the one that brings the buyer, they are splitting the commission each brokerage receives with an agent. So, the agent who signed up the listing with the seller gets half of the $6,000 the listing brokerage retains, or $3,000. The agent who worked with the buyer splits the other $6000 half of the buyer brokerage commission with their company and gets $3,000.
This is the most common process, and results in roughly a four-way split of a commission. However, all the way around, the splits are negotiable, and some agents get more or less than the 50% discussed here. The point is that there are two companies with management and agents both working to market a home, match a buyer with a seller, and help both sides through the complex real estate transaction process.
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