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Real estate commission explained

image of money in envelop

Real Estate commission is one of those things that people are always curious about but by trying to be polite are often hesitant to ask about. As such, I wanted to do a blog to break down commission and give a transparent explanation of how that money gets used.

We will start with some key points and then will show the financial picture.

Key Points:

  • Real Estate commission is the money that is paid by the seller for the sale of their real estate property.

  • It is set as a percentage of the property sale price.

  • Commission rates are not set universally but are typically set at 6% give or take. [Note: There are times when a home seller may also incorporate selling incentives/bonuses to encourage early/quick sale]

  • The commission rate is set during the listing agreement process between the listing agent and the property owner.

  • That agreed upon commission rate is paid regardless if the buyer has an agent representing them or not.

  • The commission is paid upon successful close of the sales transaction when other money is disbursed for the sale of the home.

  • The seller has the obligation to pay the commission upon close, unless a buyer has agreed to take responsibility as a part of their sales contract/offer.

  • The commission rate does not get modified from the original agreement unless a new legally binding agreement is agreed upon and signed between the brokerage representing the seller and the property owner.

  • The commission is actually paid to the brokerage company and the broker pays a % of the commission to the agent based on what their negotiated split was upon the agent joining the brokerage firm.

The Commission Financials Using an Example:

Property was listed for $315,000

An agreed upon sales contract allowed buyer to purchase home for $300,000 (95.2% of the list price)

Agreed upon commission rate was 6%, which is $18,000

Seller will receive $282,200 for the sale of their home

What happens to that $18,000 Commission and how much does the agent really make?

example of a real estate commission payout


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