You’re in the real estate business because you care about helping people find the perfect home and you want to make money. Commissions can be lucrative, especially in today’s market where homes are selling like hotcakes. You’re mentally tallying up your commission check in your head every time you even get close to a sale. However, as a new agent, it may be disheartening when a big chunk of the commission from your hard earned sale is split with your broker and the other agent in the transaction leaving you with a lesser paycheck. That’s part of the deal. So, how does a typical commission structure work and what’s a reasonable split? Here’s some insight to help you understand the tricky world of real estate commissions:
Buyer/Seller Agent Split
In most transactions, there are two agents: one working for the buyer and one for the seller. These agents will split a commission fee, typically 5-6% of the purchase price of the home (according to the National Association of Realtors). This payment is usually disbursed by the seller at closing. While commission structures can vary depending on the brokerage firm and the local real estate market, this type of commission plan is quite common across the country.
Once the agents representing the buyer and the seller have split their commission, they must then split commission with their individual brokers. A typical split in most states is 60/40: sixty to the agent and 40 to the broker. Some brokerage companies will then further share commissions with agents working under them at an agreed rate.
Here’s an example of a 60/40 commission structure breakdown based on the sale of a $300,000 home: At 6 percent, the commission would be $18,000. The listing agent/broker and buyer’s agent each take half equaling $9,000. The brokers split the $9,000 with the agents at a 60/40 ratio. The listing agent and buyer’s agent each took $5,400 (9,000 x 0.6). Each broker keeps $3,600.
Negotiating a different commission isn’t impossible and the outcome will vary depending on the firm, the housing market and the parties involved. If you’re not happy with a commission structure, the first step is to talk to your broker about it. It also doesn’t hurt to ask the other agent involved in the transaction if there’s any wiggle room in tweaking commissions.
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