Writen by Kimberle Balsman
A really nice, albeit frustrated, man emailed me recently and asked for a straightforward answer to the eternal question, "How much commission is paid to a real estate agent?" He had been trying for some time to get an answer to his question with no success. After reading my articles on Ezine, he emailed me and asked what the standard commission rate was for real estate agents nationwide.
Ironically, during my tenure as a Century 21 agent, I was frequently asked the very same question. I assumed, at the time, that the question was posed as part of the rate negotiation for the listing contract. I now realize that the general public really has no idea how real estate commissions work. So, I thought I would share with my readers my answer to the email.
The truth is that there is no "standard" commission rate. In fact, in most states, the law and/or the Real Estate Commission prohibits any attempt by real estate agencies to set or fix real estate commissions. Real estate agents can charge any commission they want, so long as the public is willing to pay it. Thankfully, competition is a factor, which keeps commission rates "reasonable."
Realty companies will often set minimum and maximum commission rates for its agents, leaving agents some negotiating room. For example, I could sign listing contracts for any commission 6% or higher. If I wanted to take a listing for less than 6%, I had to get approval from my managing broker prior to signing the contract. This practice is perfectly legal. However, agents are not allowed to discuss commission structure with agents from other realty companies. Likewise, realty companies are not permitted to advertise their commission rates.
I have also been asked how real estate commissions are shared between the listing agent and the selling or buyer's agent. The total commission negotiated when the listing contract is signed is the maximum commission to be paid by the seller to complete the transaction. The amount of commission to be paid to the buyer's agent is negotiated when a sales contract for the purchase of the seller's property is written. Generally speaking, the total commission, which reflects a percentage of the total sales price, is split evenly between the listing agent and the selling agent. However, due to fierce competition and, in some cases, rancor between agencies, the reciprocal commission arrangement has shifted to one of stealth and greed. What I mean is that some listing agencies will intentionally hold back or "skim" a portion of the total commission and indicate in the Multiple Listing Service that the commission is less than what was agreed upon in the listing contract. Thus, the listing agency keeps more of the total commission. The selling agent may or may not know he has been slighted on the commission. You can only imagine the domino effect such a practice has on the relatively small community of realty companies in a given area.
The important thing for you, the consumer, to remember is that real estate commissions are ALWAYS negotiable. So, if you are considering listing your home for sale, use this knowledge to your benefit and negotiate a fair and reasonable commission rate. Real estate agents are hungry for commissions and will nearly always acquiesce to get your listing.
Kim Balsman is a former licensed Century 21 real estate agent and Realtor. She now devotes all of her time to her photography business and writing.
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