Where does a realtor’s commission go?

September 7, 2010

Many eyes have popped wide open when they see the lump sum that some real estate  agents are able to get as a commission after closing a real estate transaction. However, what many fail to see is that a real estate agent’s commissions is divided between different parties depending on the agreement that has been made in contract between the real estate agent and the respective party. In many cases real estate agents are not as rich as many people would think, because their success depends heavily on how many houses they can sell and not so much on how high their commissions are.

A real estate agent may not sell a property for two to three months, and this will depend on the type of property and the asking price. During this period, he or she will have to make do with the money that  was received from the most recent sales to make ends meets at the end of the month. If by chance the real estate agent is able to get successive realtor commissions, then depending on how much the house costs and his percentage, then they can be considered to have a comfortable life.

If you decide to  hire a real estate agent to help you sell your property and not take the ”for sale by owner” approach, then there are two types of agents that are involved in the process: the listing agent and the selling agent. The listing agent is responsible for the sign that is placed to advertise your property, whereas the selling agent will be responsible for guiding you through the whole process of selling your property until the transaction is closed. When commission is paid  it has to be divided between selling agent and the listing agent.

Both selling agent and listing agent cannot operate by themselves, because by law they have to be represented by a real estate agency. Furthermore, it would be a rather difficult process to operate alone as a real estate agent, because they would have to be responsible for overhead costs, advertising costs, business tax and much more.

Once the commission is divided between the listing agent and the selling agent then the agency is left to get its share. The amount that the agency receives will depend on the agreement that has been established by contract between the agent and the agency. In some cases it might be 50/50, or in other cases it might be that the agent takes home the larger share with a 90/10 agreement. The amount that the real estate agent eventually takes home after removing the real estate agency’s share  will depend on the agreement.

As pointed out earlier, a realtors commission can only be considered a lump sum that can guarantee a comfortable life if he or she is getting different sales throughout the month. If a house is sold for example $1,000,000 and it was agreed that the realtors commission would account for 6%, then he or she will be paid $60.000. If there is a 50/50 agreement between the selling agent and the listing agent, then the split will leave each with $30,000. If the agreement between the real estate agent and the real estate agency is 50/50, then the broker will get $15,000. When there is low demand in the real estate sector, then this is the amount that the real estate agent will have to use to conduct his or her life until another sale arises.

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