Real Estate Vocabulary 101: Commission

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What is commission in a real estate transaction?

A commission in a real estate transaction is how real estate agents get paid.  It is usually a percentage of the sales price of the property sold.  Agents earn the commission by performing tasks associated with the transaction that support their client.

The commission is paid to the agent’s broker and then on to the agent.  An agent cannot work without having a broker to work under; therefore, the agent cannot be paid without having or being a broker.

When is the commission paid and who pays it?

In most cases, the commission for both the buyer’s and the listing agent is paid by the seller at the close of the transaction.  The amount to be paid is agreed upon at the time of listing the property for sale and is included in the listing agreement.  Even though the fee is usually a percentage, it can be a set amount.

If a buyer is wanting an agent to work on their behalf to purchase a property that isn’t listed, the agent will usually request the fee to be paid by the buyer if the seller is unwilling to cover at closing.  This should be included in the agreement between the agent and the buyer if there is an exclusive agreement made between the two.

Why do real estate agents make “SO MUCH” money?

Most real estate agents work really hard for their money.  The commission money goes to cover not only their living expenses, but also all of the fees and expenses that come with being a real estate professional.  Their living expenses are usually higher than that of an employee because they are responsible for items that are usually included as benefits to working for an employer.

These expenses can include the list below and much more depending on their market area and any specific property types an agent might focus on.

·      multiple listing service fees (access to the local area’s real estate data)

·      brokerage fees (fees charged by their broker allowing an agent to work)

·      memberships within the state and national professional organizations

·      insurance (health and additional vehicle coverage)

·      continuing education required to keep their state issued license

·      travel expenses (showing houses, closings, listings, letting other professionals into the property as needed, educational events, etc.)

·      professional photographs of listings (when offered)

·      advertising

·      self-employment taxes

·      retirement (401(k), IRA, etc.)

·      time off (vacation and sick time)

·      normal office expenses (phone, internet, office supplies, etc.)

For additional resources and information on commissions, see these sites below.

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