What Does a Real Estate Company Charge For Commission?
When hiring the services of a real estate agent, they are paid through commission for selling a home. The single most considerable expense when selling a house is paying a real estate agency for their services.
One of the most asked questions among sellers to real estate agents is, "how much is the real estate commission you will be charging me." If you are going to be selling your home it's natural to want to have this information.
Every consumer needs to understand that real estate commissions are one hundred percent negotiable. What one company charges for a commission could be completely different than the one down the street.
There is no standard amount of commission you will pay, although it typically ranges from four to six percent of the sale price. Is it possible you could pay more or less - absolutely because commissions can vary considerably.
While many professionals are paid by the hour, your Realtor® will more than likely only be paid when they actually sell your home. Some agents do charge a flat fee for their services, but most take a percentage of the sale value.
It should be noted there are some entry only real estate companies that do nothing more than putting a home in MLS. They call this flat fee MLS, and it is predominately used by those who want to try to sell their home without a real estate agent. The entry only company does nothing more than list the house in the multiple listing service. There are certainly pros and cons to this type of marketing.
On the service, it looks like a great thing, but when it comes down to it, there is a lot more involved with selling a home than putting it in MLS. The resource at Maximum Real Estate Exposure into the downsides of flat fee MLS.
Who Pays the Agent's Commission?
The vast majority of the time, the commission expense is borne by the seller. The commission paid can be substantial - as much as $12,000 on a $200,000 property. The agent who sells the home doesn't necessarily get all of this commission. If the buyer is using a buyer's agent (which they should), they will typically get around half of that amount. While there is the possibility of a different commission split, more often than not, it is split equally between the listing and selling agency.
Though the seller pays their agent as well as the buyer's agent, this fee is sometimes accounted for in the sale price. It could mean that the seller is less interested in accepting lower offers also. There are times where a buyer could end up paying part of a commission as well. An example would be if there is a buyer's agency agreement in place that states they need to make a certain percentage from the sale.
Let's say the buyer's agency agreement states they need to make a minimum of 2.5% of the sales price, and a seller is only offering a co-broke fee of 2%. In a circumstance such as this, the buyer would be on the hook to make up the 1/2 percent fee.
Another example would be if a buyer's agent found a for sale by owner home that was perfect for the buyer. It's possible the for sale by owner might not agree to pay the buyer's agent a fee. In this case, the buyer's agent would get paid by their client.
Is It Possible to Negotiate an Agent's Commission?
This can sometimes be possible, particularly if the agent is representing both the buyer and seller in a dual agency role - I will get to that in a minute. The other more common situation where agents negotiate on commission is if they are helping one party sell a house and purchase another. In this situation, the agent is making two sales and could agree to discount their fee.
There are also no set commission rates, so it is possible to ask for a reduction from your Realtor. This could bring some problems with it; however, since the agent knows that they are getting less commission, they may put in less effort. You would obviously want to avoid this kind of agent. It could mean that less is spent by the agent to market your property, which could lead to it staying on the market for a longer period of time.
Avoid The Dual Agency Arrangement
In dual agency, the agent can work for both the buyer and seller. This is known as a dual agency arrangement and is legal only when there is full disclosure. There is an obvious conflict of interest in this arrangement, and many agencies avoid this situation. It also isn't allowed in every state for that reason. If you are smart, you will avoid dual agency at all costs, as it offers no benefits to a buyer or seller.
In a dual agency arrangement, the real estate agent becomes a neutral party. What this means is the agent is NOT allowed by law to give either the buyer or selling any advice in the transaction. For most, getting guidance and expertise is the very reason why they hire a real estate agent. An agent giving advice would be tantamount to practicing ILLEGAL dual agency.
The only party that benefits in dual agency is the real estate agent who rakes in both sides of the commission. Given this, an agent may decide to give one of the parties a discount.
Getting a 2000 dollar commission discount won't be worth making a $10,000 mistake by overpaying for the property. It won't be worth having someone pointing out of the pitfalls, including whether you should buy the home to begin with.
What Does Real Estate Agent Commission Pay For?
You can sell your home yourself, but there is a lot of things you need to do, which may not be immediately apparent. The real estate agent will take care of things like assessing the value of your home, hiring a professional photographer, marketing it through numerous online channels, marketing it on a multiple listing service, creating marketing brochures, showing the house, negotiating the sale, and representing your interests throughout the transaction.
When selling without an agent, it is critical to understand how to sell by owner. On the surface, it may seem easy, but most homeowners quickly realize it is not!
Using an agency will allow you to get the best price for your home. It will remove much of the stress from the process and allow you to focus on other aspects of the sale, such as moving, so you don't make some of the more common moving mistakes.
The evidence seems to indicate that Realtors provide better results than a "for sale by owner" situation as well. With average sale prices being significantly higher with the use of an agency, over the going it alone method.
If My House Doesn't Sell, Do I Still Pay Commission?
You wouldn't normally be expected to pay anything if your home doesn't sell. You will need to carefully read through the agreement you have signed with the agent to be sure, however. This agreement normally ties you to the agency for a certain amount of time. If the home doesn't sell in that time period, you will likely be able to end the contract and move onto another agency if you aren't happy with the service you received.
There can be some exceptions to this, however. This can include if the agency found a prospective buyer just before the contracted period ends, and they become a buyer afterward. If you decide to withdraw from a sale after an offer was accepted, you can still owe the agent as well.
Real Estate listing contracts can vary from state to state, as well as agency to agency. It is vital to make sure you understand precisely what you're committing yourself to. Lots of homeowners become disenchanted with their agent's performance but lock themselves unknowingly into an extended contract.
Don't make this mistake!
The Small Print
When entering into a listing agreement with a real estate agent, it is important to check the details of the contract. It will give you full details of the real estate commission, along with other transaction charges that will be payable. It will also state how long the agency will represent you; typically, this will be somewhere between three to six months.
Make sure you don't lock yourself into a contract time frame that is unwarranted.
Final Thoughts on Payment of Commissions
While it is possible to find cheaper deals on your real estate commission, it isn't necessarily a good idea. The most experienced and knowledgeable agents are unlikely to offer lower rates, and they are the agents who stand a better chance of giving you a higher sales price.
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Use these additional resources to make the best decisions when buying or selling your next house.