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How do REALTOR® Commissions Work?

Understanding Real Estate Commission When Buying or Selling a Home

Most people buying or selling a home don't really understand how REALTOR® commissions work. There's a sneaky secret that most agents don't want you to know. Real estate commissions are negotiable. In most cases, a real estate agent or Realtor is paid a percentage of the home's sale price no matter how you think your agent did. The commission an agent is paid is included in the sale price of the home so before you pay $10,000+ in agent commissions, ask yourself these questions:

Does it take more work?

Agents do the same amount of work whether a home is worth $150,000 or $15 million, but they are paid based on the value of the home, not their efforts.

Did you know the price of the home you are buying includes the cost of your agent?

When you buy a home, traditional agents will tell you the seller pays their commission.

What exactly are you paying for?

You will likely find your next home online without an agent's help. Agents can do more in less time with advancing technology. Yet, traditional agents still demand commissions, charging tens of thousands of dollars for their services.

Let's look at the typical 6-7% deal.

Every time a house sells, both the buyer's and seller's agent take home a percentage of the sale price.

Sellers Agent

6-7% of YOUR equity.

Buyers Agent

Who sets the commission?

The sellers signs a contract entitiling their agent to a percentage of the sale price of the home. Their agent then uses a private field on the MLS - that only other agents can see - to offer half the commission to an agent who brings a buyer.

Who pays the commissions?

Agents get paid when the buyer brings money to the table. Then everyone gets paid with the buyer's money. In reality, buyers AND sellers are both involved in the flow of money that ultimately pays agents' commission checks.

Check the facts, commissions are always negotiable.

You might hear offering lower commissions is illegal, brokerages won't allow commissions or lenders require a standard commission. None of this is true.

Sellers, check the facts

Claim

Your traditional agent provides a service worth tens of thousands of dollars - and you can't get the same service anywhere else.

Truth

You can get the same service for a fraction of the cost.

Most agents can provide staging advice, arrange professional photography, list your home on major real estate sites including the MLS, put up a for sale sign, and hold an open house. Is that service worth 3-3.5% of your home's sale price?

Claim

The MLS doesn't allow your agent to offer lower commissions in a listing.

Truth

It is illegal for the MLS to control commissions.

Agents are allowed to post flat fees and discounted percentages.

Claim

If I offer less than the "standard" commission, buyer's agents will refuse to show my home to their clients.

Truth

Agents have a fiduciary responsiblity to put their clients interests above their own.

Agents who refuse to show homes with a reduced commission are unethical and dishonest - and represent only a small percentage of agents.

Make sure you get what you pay for.

Buyers, check the facts

Claim

When you buy a home, your agent is free.

Truth

The money you bring to closing when you purchase a home pays both the buyers and seller's agent.

3-3.5% of the price you pay for your new home goes into your agent's pockets. Does that sound free to you?

Claim

If a seller offers a lower commission, the Buyer must pay the difference.

Truth

Neither your Agent or the MLS has the legal authority to mandate commission rates.

As a Buyer, you're under no obligation to provide a commission other than what is agreed to in your Buyer Agency Contract with your agent and their Brokerage.

Make sure you get what you pay for.

I want to save thousands in commissions.

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