Insiders Guide to Real Estate Agent Commissions

By Mark Nash

Many real estate consumers are bombarded today with the call for lower real estate commissions, and it would seem to make sense. As home prices have risen dramatically over the last couple of years, real estate commissions have dropped to 5.1 % as a national average according to industry sources. Mark Nash author of 1001 Tips for Buying and Selling a Home outlines how real estate commissions are paid out among the four principals to a residential transaction.

A typical real estate transaction today involves the property seller compensating their broker. Occasionally a home buyer retains a buyers broker and compensates them directly instead of the seller, fee-for-service home sellers usually only pay a flat fee to the listing brokerage and not a percentage commission. These two models are more the exception than the rule. In the traditional model the listing brokerage pays the cooperating (buyer’s) broker a percentage of the contract price.

Each side of the transaction then divides their side again equally or unequally to compensate the brokerage and sales agent. The percent that your real estate sales agent divides with their broker varies according to a written agreement with them. Typically agents keep more of the split with consistent upward sales volume.

Most real estate agents today are independent contractors and not employees of their brokerage. Realty agents pay for their own health and retirement plans in addition to all property business expenses, like any sole proprietor and in some cases a desk fee or a fee to use office space at the brokerage. It can add up to some large numbers annually.

An example of a percent commission split:

-A property sells and closes for $100,000.00.

The seller pays a commission to their listing broker of 5%=$5,000.00.

-The listing broker pays a cooperating commission to the buyer’s broker of 2.5% =$2,500.00.

-The listing broker pays a split of 65% of the listing side of the 2.5% to the listing agent:

2.5%=$2,500.00. 2,500.00 X .65= $1,625.00.

The listing agent receives $1,625.00 in compensation from their broker.

-The buyers broker pays their buyers agent a commission split of 52% of their side: 2.5%=$2,500.00

$2,500.00 X .52=$1,300.00. The buyer’s agent receives $1,300.00 in compensation from their broker.

Mark Nash's fourth real estate book, "1001 Tips for Buying and Selling a Home" (2005), and working as a real estate broker in Chicago are the foundation for his consumer-centric real estate perspective which has been featured on ABC-TV, CBS The Early Show, Bloomberg TV, CNN-TV, Chicago Sun Times & Tribune, Fidelity Investor’s Weekly, Dow Jones Market Watch, HGTVpro.com, MSNBC.com, The New York Times, Realty Times, Universal Press Syndicate and USA Today.

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