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Who Gets the Real Estate Commission?

Real estate commissions are a pretty big item in the closing and settlement statement. For an example transaction, a home goes under contract to sell for $350,000. The real estate commission is 6% for this transaction. Real estate commissions are negotiable and vary by as much as two or three percent depending on area and negotiations between the sellers and the real estate brokerage.

The complete real estate commission is listed on the seller side of the closing statement because the seller negotiates it with the listing brokerage. That is the total commission for a sale transaction, and it is cut up more than some may realize. Who are the players? There are actually six of them involved in most transactions:

  1. The seller 
  2. The buyer 
  3. The listing brokerage 
  4. The agent at the listing brokerage 
  5. The brokerage that brings a buyer 
  6. The agent at the buyer brokerage 

The seller and buyer are not involved in commission splits. The seller normally negotiates and pays the entire commission to the listing brokerage. When you begin to break down the commission, the pie slices get considerably smaller than the whole pie. At every stage, the splits discussed here are negotiable, but here the most widely used will be the example. Here are the splits for these normal commission split deals:

The total commission at this 6% example: $350,000 x .06 = $21,000

  1. 1. ½ to the listing brokerage: $10,500 before agent split 
  2. ½ split to the listing agent: $5,250 
  3. ½ to the buyer brokerage: $10,250 before agent split 
  4. ½ of that to buyer agent: $5,250 

In this common example, each of the participants shares in the commission for $5,250. This is the simplest example. One wrinkle in many deals is a Franchise fee. If the listing brokerage is part of a franchise, a common percentage fee off the top is 7% of that brokerage's share, so the listing brokerage really only gets $9,765 to split with the listing agent.

If the buyer brokerage belongs to a franchise, the same example 7% fee will make the buyer brokerage split $9,765 before splitting with the buyer agent. Now the example gross amount to each of these four players is down to $4,882.50.

Out of these commissions, the brokerages have their business operating and marketing expenses, and the agents have their own expenses as independent contractors. According to Salary.com, the average real estate agent's gross income in 2017 was $36,000. As independent contractors, most agents pay for much or all of their own advertising and many pay for their own computers and business equipment and printing.

Real estate is a great career, but buyers, sellers, and people considering a real estate career should understand the way money is made and the reality of the business.

Reference Links : https://money.usnews.com/careers/best-jobs/real-estate-agent

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