The real estate commission is the agent’s fee for service. It’s a percent of the sale price and it is agreed upon at the time of the listing. Every seller has the right to negotiate the commission, just as every agent may hold fast to his or her fee.
Commission could be 7%, 6%, 5%, more or less, and it gets paid to the listing brokerage upon successful closing of the real estate transaction. That means it gets paid to the real estate company, not the agent. The company and agent will have a commission agreement in place which will determine their split.
Fees and commissions are independently established and usually based upon the quantity and quality of services provided. There are two rates of commission that one should be aware of:
1. The rate of commission that the seller will be required to pay to the listing company, and
2. The cooperative rate of commission that the listing company will pay to the selling company that procures the buyer.
For example: When a $300,000 home with a 6% listing fee gets sold, the listing company will receive 6% ($18,000). Of that 6%, a certain percentage represents the co-op commission (e.g., the commission that is paid to the selling company that brings in the buyer).
If that co-op commission is 3% (and both buying and selling agent have a 50% commission agreement with their brokers), then the commission will be split four ways, with each broker and agent receiving $4,500.
In the above example, if the listing agent brought in the buyer (which in some geographic areas is called a “hogger”) then the listing broker and agent would receive $9,000 each.
One might think that different commission rates are based upon the services that a real estate brokerage provides (e.g., some companies are full service, others might offer fewer services).
One might think that more commission paid equates to more services received. But that is not always the case, and savvy sellers should always compare the commission that they are paying to the services that they are receiving.
It is the listing agreement, a written contract between the seller and the real estate brokerage/company that specifies the commission. The contract details the agreed-upon terms under which a commission is paid, and the total commission to be paid.
There are different types of listing agreements (e.g., exclusive right-to-sell, exclusive agency, and open listing agreements). In addition to spelling out the unique terms on how the home listing will be handled, the real estate commission will always be clearly stated.
Larry Stoller is a broker and Realtor with Real Estate Five of the Lowcountry. Larry@RealEstateFive.com, RealEstateFive.com, SunCityOpenHouses247.com