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Real Estate Commission Fees: How Do They Work?

Careers in real estate can be quite lucrative. Rather than receive an hourly rate or salary, agents earn real estate commission on every sale. 

It sounds a bit scary not having a steady income. Your earnings are a direct reflection of your sales. For beginners, it could be weeks or months before you see a paycheck.

But that also means that you’re in charge of determining your own salary. The more you sell, the more you earn, with no limits on your potential. 

Let’s explore the ins and outs of real estate commission and how you can ensure a profitable career:

How Commissions Are Paid

Most people realize that real estate agents work on commission, but where does the money come from and how is the amount determined?

Generally, there are six parties involved in the buying and selling process: the buyer, the seller, the buyer’s agent, the seller’s agent, the buyer’s agent’s broker, and the seller’s agent’s broker. 

This fee can vary between brokerages and regions, but you can usually expect it to be between 5-6% of the property’s final selling price. 

The commission is first split between the two brokerages. Then, each broker gives the agent a piece of their commission based on their predetermined agreement. 

Sometimes, the broker fee to the agent is a percentage. In some cases, the agent may receive 100% of the broker’s portion and pay the brokerage firm a recurring fee to cover overhead. 

Who Pays the Commission?

For the most part, the seller is responsible for paying commissions out of the property sale. The commission is usually included in the sale price of the home, so ultimately buyers are paying the fees. 

Agents and brokers receive their fees once the sale is finalized. However, services like MyCommission.com allow you to get advances on your commissions ahead of closing dates. 

Real Estate Commission Fees Are Negotiable

Though industry standards hover between 5-6%, real estate commission is negotiable.

Commission rate is determined prior to signing a listing contract. The total commission is set on a per-case basis to strike the right balance for both agents and sellers. 

When someone places an offer on the home or property for sale, the listing agent and the buyer’s agent will negotiate with each other to determine how to split the commission. 

In most cases, the commission is split down the middle. But in some circumstances, one agent may receive a larger portion than the other. 

Are You Sold on a Real Estate Career?

Does the prospect of earning real estate commission entice you? If so, it’s important to consider more than just your earnings potential as an agent. 

It’s more than earning your license and waiting for clients. Rather, you must also be able to market yourself to find clients that will help you earn commissions.

But once you learn the industry and start building your income, you’ll have a better idea of how to maximize your earnings potential. 

For more tips and insights on how to improve your real estate career, head to our Real Estate section.