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How Agent Commissions
Work
Misconceptions
Have you ever heard: "I’m not paying that agent 6% to sell my
house." Commissions don’t work that way. Assume a seller agrees to
list his home with Agent A for 6% commission. Then Agent B brings an
acceptable offer from a buyer.
In a typical example, Company A and Company B split the earned
fee, each taking 3%. Then the broker and the agent, from each
company, then split their company’s commission. So in the end each
agent earns perhaps only 1.5%.
Considering the hours and hours of work, plus the money spent on
advertising, 1.5% is not an exorbitant fee. (It should be noted broker/broker and broker/agent
fees are not always split 50/50, each firm hasn its own policies and
arrangements.)
Another misconception is if a home sells quickly, it means the
agent has not earned their commission because they haven’t worked
long enough to earn it. This is not true. A seller, in essence, pays
an agent to sell their home. If it sells quickly it usually means an
agent has done something right, not something wrong.
Commission Ranges
For residential property, listing commissions usually range from
5.5% to 7%. Commercial property and vacant land range from 8% to
10%. Agents often request the upper end of the range for low priced
properties and hard to sell real estate. Their reasoning is simple.
. . they need enough commission to justify their marketing expense
and time. If you wrestle them down too low, you may get it listed,
but you may not get it sold, due to minimal marketing.
Rates Are Always Negotiable
We can not stress enough that there is no such thing as a
standard real estate commission. COMMISSIONS ARE
ALWAYS NEGOTIABLE!!! If an agent says they only take 8%
listings on homes, you are free to negotiate with them or find
another agent if you feel you won’t receive good value for your
money.
CAUTION
CAUTION
CAUTION
Negotiating an extremely low commission may NOT always be in
a seller’s best interest. Agents must cover their expenses and pay
the other broker’s commission. If a commission is unfairly low, how
much effort do you think an agent will put toward marketing your
property? Also, some agents may steer prospective buyers away
from listings with very low commissions.
Real estate agents are not in business to work for nothing and
sellers certainly don’t want to waste their hard-earned money on
excessive listing commissions. The best deals lie in the middle of
fairness.
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