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Like the name suggests, the real estate commission is the percentage of the proceeds from the sale of a home that is handed over to the real estate agent as their fee for their assistance with the matter. Generally speaking, it is claimed that the average real estate commission is around 6 percent, but according to Investopedia, the actual figure is around 5.1 percent in the United States, though it should be noted that this is based on a 2014 report by REAL Trends Data. Although the real estate commission sounds like a simple and straightforward concept, it is important to note that it can come with its fair share of complexities, meaning that real estate consumers should make sure to research the issue for the sake of protecting their financial interests.
Who Gets What From a Real Estate Commission?
First and foremost, it is important to note that there is a separation that should be made between real estate agents and real estate brokers. In brief, both real estate agents and real estate brokers have much the same duties and responsibilities, meaning that they help real estate consumers with both buying and selling real estate properties. However, real estate agents cannot work on their own but must instead work with a real estate broker. In contrast, real estate brokers have no such obligation, meaning that some will work on their own while others will work with entire teams of real estate agents under them. This is because people need less expertise, less experience, and a less challenging exam to become real estate agents compared to real estate brokers, meaning that they are afforded a smaller degree of trust by the relevant authorities.
As a result, whenever a real estate agent receives a real estate commission, the sum is actually paid to the real estate broker before a part of the sum is paid to the real estate agent. Depending on the real estate agent as well as the real estate broker, this part of the sum can be as low as 30 to 40 percent of the real estate commission since higher percentages for better real estate agents serves as a simple but nonetheless powerful way to convince said individuals to give their utmost. Naturally, the rest of the real estate commission is collected by the real estate broker, who will use part of it to keep the real estate brokerage running before pocketing the rest as their reward for letting the real estate agent work with them as well as whatever assistance that they might have provided them in the course of their duties and responsibilities.
Furthermore, it is important to note that both the buyer and the seller for a particular real estate transaction might be represented by a real estate agents. When this happens, both the buyer’s real estate agent and the seller’s real estate agent will be paid using the same percentage of the proceeds from the sale that was agreed upon as the real estate commission. Generally speaking, this percentage will be split on an even basis between the two real estate brokerages before being passed onto the respective real estate agents, but it is interesting to note that the contracts for some real estate transactions will stipulate different arrangements for how the real estate commission is to be split up.
Are Real Estate Commissions Set in Stone?
Understanding the real estate commission is important because it ensures that the real estate consumer will have an easier time when it comes to negotiating a percentage that is acceptable to them. After all, if the real estate consumer knows who they are dealing with as well as the circumstances in which they are operating, they will have a much better understanding of what they will and will not accept, which can be turned into some surprising discounts.
For a simple example, if a real estate consumer is speaking to a real estate broker rather than a real estate agent, they know that the real estate commission will remain profitable at a lower percentage for the first than the latter, meaning that they can press them more. This is because the real estate broker will be receiving the entire real estate commission, whereas the real estate agent will be receiving no more than a percentage of the same. For a more complicated examples, it is important to understand that both real estate agents and real estate brokers will be more accommodating when there is more to be gained from a particular real estate transaction. As a result, real estate consumers will have more success in pressing for a lower percentage either when they are a repeat client or when a higher-value real estate property will be exchanging hands. After all, a repeat client means that there is more business at stake in the future, while a higher-value real estate property exchanging hands means that there will be more of a pay-off for much the same expenditure of time and effort even with a lower percentage for the real estate commission. Finally, it should be noted that small real estate brokerages tend to be more accepting of lower percentages, but also tend to provide less in services.
In the end, each real estate consumer must decide how much service they will need when it comes to their real estate transaction as well as how much they are willing to pay for that service. In this as in other things, the more they pay, the better the service that they can expect. However, if they pay attention to who they are negotiating with, they might be able to get some surprising discounts while also getting the level of service that is right for them.
Further Considerations
Summed up, real estate consumers must be prepared to put significant time and effort into choosing a real estate agent with a real estate commission that is acceptable to them because there is no one else who will be looking after their financial interests for them in this particular case. This is particularly true since real estate commissions tend to be around the tens of thousands of dollars in the United States but can reach much higher figures under certain circumstances, meaning that there is much at stake
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