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Where Does a Real Estate Agent’s Commission Come From?

Agents-Commission-Source

Knowing where a Real Estate Agent‘s commissions come from can help individuals understand the financial aspects of working with an agent. So, understanding financial aspects, including seller’s proceeds, buyer’s closing costs, brokerage fees and additional considerations, ensures informed decision-making in property transactions.

 

4 MAIN sources of a Real Estate Agent’s commission are listed below:

  1. Seller’s Proceeds
  2. Buyer’s Closing Costs
  3. Brokerage Fees
  4. Additional Considerations

 


1. Seller’s Proceeds

In most property transactions, the seller is responsible for paying the Real Estate Agent’s commission.

This commission is typically deducted from the seller’s proceeds at the time of closing, before the remaining funds are disbursed to the seller.

Generally, this commission is:

  1. Calculated as a percentage of the final sale price of the property.
  2. Negotiated between the seller and the listing agent before the property is listed on the market.
  3. Split between the listing agent and the buyer’s agent, with each agent receiving a portion of the total commission.

 


2. Buyer’s Closing Costs

In some cases, the buyer may agree to pay a portion of the Real Estate Agent’s commission as part of their closing costs.

This arrangement is less common but may occur in situations where the seller is unable or unwilling to pay the full commission.

In this case, the commission is:

  1. Included in their closing costs and paid at the time of closing.
  2. Negotiated between the buyer and their agent as part of the purchase agreement.
  3. Considered when buyers consult with their agent and lender to understand the implications of including the agent’s commission in their closing costs.

 


3. Brokerage Fees

A Real Estate Agent typically works under a brokerage firm, which may charge varied and additional fees or commissions on top of the agent’s commission.

These fees should be:

  1. Paid by the agent to their brokerage.
  2. A portion of the agent’s commission as a fee for services provided, such as office space, marketing expenses, and administrative support.
  3. Clarified by the agent as their brokerage’s fee structure and policies before entering into a contractual agreement.

 


4. Additional Considerations

It’s essential to consider various factors that may impact the Real Estate Agent’s commission structure.

For example:

  1. Market Conditions: In competitive markets, agents may be willing to negotiate their commission rates to secure listings or attract buyers.
  2. Property Value: Sellers should carefully review the terms of their listing agreement, including the commission rate and their property price.
  3. Negotiation Strategies: Buyers should discuss their budget and financial considerations with their agent to ensure they understand the potential costs.

 


Summary:

A Real Estate Agent’s commissions are typically paid by the seller and deducted from the proceeds of the sale at closing. Also, buyers may contribute to the agent’s commission as part of their closing costs, although this arrangement is less common. Brokerage fees may also apply, depending on the policies of the agent’s brokerage firm. Therefore, by understanding where an agent’s commission comes from and what structure it has, buyers and sellers can navigate the financial aspects of property transactions with confidence.