SELLER’S ADVICE: WHY ARE REAL ESTATE COMMISSIONS SO HIGH?

Who gets all that commission money when you sell your home? Most real estate agents bill sellers approximately six percent of the sales price, which can be a really nice payday. Sometimes the agent can make more out of the deal than you do. So why does it cost so much?

Nearly nine out of 10 real estate agents work on commission, and are paid only when the transaction closes. Except for the legal profession, real estate agents are the only fiduciaries and agents who work this way.

Commissions are paid according to the terms of two contracts – the listing agreement and the sales contract.

To simplify how commissions are routed, the real estate industry customarily allows all sales commissions to be paid out of the seller’s proceeds, according to the terms of the listing agreement. The five, six or seven percent commission that is negotiated is given to the listing agent, or listing broker.

According to licensing law, only licensed brokers can serve as fiduciaries. They have “agents” or licensed salespeople who work for them, but they have the legal responsibilities of operating the brokerage.

The salesperson license allows salespeople to serve as agents of the broker. They can negotiate contracts, but the seller is actually negotiating with the broker, by proxy. It’s the broker’s company name and signature on the listing contract.

Once the home is listed in the multiple listing service, (MLS) the listing broker discloses the terms of the commissions to other competing brokers, so they will bring their buyers to the listing.

When the buyer’s broker presents a contract to the seller, it will include a provision to collect their share of the sales commission, as offered by the listing agent in the MLS.

That means a commission can be split as many as four ways:

  • Listing broker or agent
  • Listing salesperson
  • Buyer’s broker or agent
  • Buyer’s salesperson

At closing, the listing agent is paid by the escrow agent out of the seller’s proceeds, or a day or two later when the buyer’s loan is funded by the lender. The listing agent, in turn, pays the buyer’s agent his or her share of the sales commission.

All commissions are negotiable, but sellers should keep in mind that commissions are incentives.

Written by Blanche Evans

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Author: Alicia Holman

Experience and passion are just two words that best describe Alicia Holman. As Designated Broker, Alicia is passionate about helping people begin to create wealth through making smart real estate choices. With an extensive background in customer service, her number one priority is the relationships she builds with each and every client. Alicia views helping people buy and sell Arizona real estate as more than a career. It's also her opportunity to make a positive impact in people's lives. Alicia understands the need for distinctive real estate representation. Today, Alicia couldn't ask for a better job. "It’s a great feeling to live and work in an area with so many real estate opportunities. I’ve lived in Arizona for more than 40 years and every day I gain a greater appreciation for all that this area has to offer." As a fulltime broker, Alicia’s approach to real estate is focused around getting to know her clients as real people and taking care of them from beginning to end. Her professional, straightforward approach to real estate has empowered her to listen carefully with interest and understanding to each specific need of her client, in order to assure that he or she is satisfied whether buying or selling.

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