Real Estate Agent Commission Breakdown: Where Does the Money Go?

Real estate agent commission is something that no one enjoys paying. While it can seem very expensive, it is a necessary expense if you want to sell your house without having to do all of the work yourself. Here are a few things to consider about where your money for a real estate commission goes.

Split

The first thing that you need to understand is that the commission is usually split, between real estate brokers. If you are working with a real estate agent, most of the time, they work for a real estate broker. The broker owns the business and hires the agent to represent them. When you list your property, the agency that lists it is known as the listing broker. When a buyer comes along and is represented by a buyer's agent, that agency is known as the selling broker. When two brokers work together to sell a house, they have to split the commission from the sale of the property. For example, if a commission was 7 percent, the listing broker might get 4 percent, while the selling broker gets 3 percent. 

Broker vs Agent

When the agency receives their part of the commission, that amount is split up even further. The broker is going to get a certain amount and the agent that actually worked with the client is going to get a certain amount. In many cases, they will split the commission that was paid down the middle. The agent may have to pay a franchise fee out of the half that they receive as well. Therefore, if you are working with a real estate agent that works for a broker, they might receive 1.5 or 2 percent commission, instead of the full 6 or 7 percent commission that is paid. 

Costs

The listing agent will use their commission to pay for other costs. For example, they are going to use a certain amount of money to pay for overhead. This money is going to cover things like paying for an assistant, rent, advertising expenses and other costs. The real estate agent will also have to put aside a certain amount of money to pay for federal taxes, Social Security, Medicare and state taxes. 

Agency

The broker that employs the agent is going to get a good portion of the commission. They receive this money because they are taking on a certain amount of risk by employing the real estate agent. They have to provide an office for the person to work in, they spend a certain amount of money advertising for the agency as a whole, and they pay for other expenses as well. They will also take the time and resources necessary to train the real estate agent how to sell.

Considerations

It might seem like a lot of money that you are paying to sell a house. However, ultimately, the listing agent does not get that much from it and the cost is usually well worth the benefits. A good listing agent can make the sale of your home an easy process.

blog comments powered by Disqus