December 15, 2007
Who pays real estate fees?
A good question that’s hard to answer. First, to determine who actually pays the real estate commissions — whether it’s sellers or buyers or both — we must first take a look at how real estate agents are paid and how they share cooperating commissions under the MLS system.
It usually works like this:
- Real estate agents work for a real estate brokerage.
- All fees paid to a real estate agent pass through the brokerage.
- Only a real estate brokerage can pay a real estate commission and sign a listing agreement with a seller.
- Division of commissions vary. New agents can receive as little as 30% to 40% of the total commission received by the brokerage. From that amount, other fees may be deducted such as advertising, sign rentals or office expenses. Top producing agents might receive 100% of all commissions received and pay the brokerage for operating espenses. Everybody else falls somewhere in between.
Listing Agents’ Fees
The most common type of listing agreement between sellers and their agent gives that agent’s brokerage the right to exclusively market the home. In return for bringing a buyer to the table, the seller agrees to pay a commission to the broker. Typically, this fee is represented as a percentage of the sales price and is shared between the listing brokerage and the brokerage who brings the buyer.
Co-operating Splits
Divisions of fees among brokerages is not always equal. For example, a seller could sign a listing agreement for 6% that stipulates the listing broker will receive 2% and the selling broker will receive 4%. So it’s not always a 50/50 split. In a buyer’s market particularly, sellers might want to consider asking the brokerage to give a larger percentage to the buyer’s agent. In a seller’s market, the buyer’s broker might receive less. There is no set formula.
Buyer Representation
Under a Buyer Representation arrangement, the named brokerage and agent represent the buyer. But fee paid to the brokerage is, most commonly, paid by the seller. Some buyer representation agreements contain clauses that will compensate the brokerage for the fee it is due less the amount paid by the seller. For example, a cooperating listing might offer to pay a broker 2.5% of the sales price, whereas the brokerage operates at fees of 3%. The difference of .5% could be paid by the buyer if the broker chooses not to waive that amount.
So who Really Pays the Commission?
It can be argued, rightfully so, that the buyer always pays the commission. Why? Because it’s typically part of the sales price. If the seller did not sign an agreement to pay a commission, the sales price might have been lowered. And therein lies the appeal of buying homes through unrepresented sellers because, given the same logic, those prices should reflect a net sales price without a commission. But those sellers haven’t quite figured this out yet which causes potential buyers of those listings to be consistently disappointed.
To help alleviate much of this confusion, don’t be astonished if over the next few years sellers and buyers each retain their own representation and pay separately for said representation.