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I haven’t blogged about the “C-word” for awhile…Commission…so I thought it was time.

Some home owners/buyers still don’t understand how real estate commissions work. Some still think that a listing agent gets paid 5-6% while forgetting that the agent representing the Buyer gets some of that (usually half but that isn’t always the case).

Here’s something else that you may or may not know about.

Let’s say there are are 2 homes each priced at $500,000. The Listing agreement says that the Listing Brokerage will get 6% total commission and split it 50/50 with the Brokerage that brings the Buyer. So that means 3% for the Listing Brokerage.

So how much will each Listing Agent receive when they sell the home?

The answer is that it varies. Here are two possible amounts:

– Real estate agent A gets a a check for $14,700
– Real estate agent B gets a check for $6,600

Why does real estate agent B get half as much as the other agent?

It’s because a large piece of the pie goes to the Brokerage. Real estate agent B gets a cut of the gross commission depending on their arrangement with the owner of the Brokerage. If the real estate agent works for a franchise (a name brand), there is also a franchise fee that is deducted from the commission too.

In the above example, real estate agent A is a Broker that has their own independent brokerage and works out of their home. Real estate agent B works at franchise of a name-brand nationwide brokerage. Real estate agent B gets a 50% cut of the net commission (after the franchise fee is deducted).

The calculation is as follows:

Real estate agent A
$15,000 gross commission
$ 300 Errors and Ommission insurance
———
$14,700

Real estate agent B
$15,000 gross commission
$ 1,200 8% franchise and advertising fee
$ 6,900 Broker’s cut
$ 300 Errors and Ommission insurance
———-
$6,600

So, when you list your home and the agent tells you how much commission they charge…it’s not always an apples-to-apples comparison to other agent’s proposals. In the above example, the independent Broker won”t provide you with a recognizeable brand name for your yard sign, people in their office to back them up, and other things the other agent can offer but they will be making over twice as much as the other agent.

If you want to do an apples-to-apples comparison, ask the agent how much they will make and where the rest goes. Don’t be suprised if some agent’s seem shocked when you ask as this isn’t something that is normally discussed. Also, don’t assume that if an agent gets a 50% cut in an office that everyone in the office is the same. The cut an agent makes varies just like salaries do in a company.

Written by Keith Byrd - Go to Keith's Website/Profile