Home buyers rarely concern themselves with how real estate agents get paid for their services. Yet it behooves buyers to take an interest in this subject since the money they bring to the deal is used to pay the brokers’ commissions.
Listing, cooperating brokers split commission
Typically, home sellers pay the listing broker a percentage of the sale price. The commission isn’t set by law, but rather is negotiable between the broker and seller. The broker may be an individual or a brokerage company represented by an agent.
The listing broker then offers a share of the commission through the multiple-listing service, or MLS, to cooperating brokers who may bring a buyer to the transaction. The cooperating broker’s share is often, but not always, 50 percent of the commission. State law may require the listing broker to tell the seller how much the cooperating brokers have been offered.
(Not sure what a cooperating or listing broker is? Read Who’s Who in a Real Estate Deal.)
If no cooperating broker is involved in the transaction, the commission belongs entirely to the listing broker. A transaction wouldn’t have a cooperating broker if the buyer was unrepresented, the listing broker represented both the seller and the buyer, or the listing agent acted as a facilitator who represented neither the buyer nor seller.
Broker, agent split commission again
The listing and cooperating brokers then split their share of the commission again with the agents or salespeople who work for them. If the agent were also the broker (e.g., in a one-person brokerage company), there would be no split.
Commission splits between brokers and agents can be any amount, though new agents often receive 50 percent, and splits less than that are unusual. An experienced agent might earn any amount from 60 percent to 97 percent or work on a sliding scale in which the percentage increases as the agent closes more business. Some agents earn 100 percent of the commission and pay fees to the broker in lieu of a split arrangement. Buyers and sellers normally aren’t privy to commission splits.
In most states, it’s legal for the buyer to receive a rebate from the cooperating broker’s share of the commission. The rebate might be a credit at closing, a gift card or some other form of compensation.
Other options for sellers, buyers
The MLS explains why cooperating brokers rarely show homes that are for sale by owner. Since those homes, known as FSBOs, aren’t listed with a broker, there is no offer of compensation and thus the cooperating broker wouldn’t be paid for the sale of the home, except perhaps by the seller or buyer directly.
Buyers can choose to offer compensation directly to an exclusive buyer’s broker. This type of arrangement is uncommon, however, in part because a buyer who didn’t purchase a house could still become obligated to pay the broker for his or her services in some circumstances.
Published on May 30, 2007