Breaking Down Realtor ® Commissions

Dated: 09/29/2014

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A lot of buyers and sellers have asked us about breaking down Realtor commissions and what the commissions cover.  The majority of real estate agents work solely on a commission-based system meaning if they don't sell any houses, they don't get a paycheck.  It is a scary profession to work in as the paychecks are not on a typical pay period like a salaried/hourly job.  Here's a list of breaking down Realtor commissions that are involve in the majority of residential real estate transactions.

1.  Sellers pay ALL commissions for real estate agents

Yes, the home sellers pay for the commissions for both sides (buyer and seller agents).  This is because the buyer's agent is bringing a buyer for the seller's home.  The commissions are distributed at the time of closing.  The average commission is 6% that the total for both sides.  Typically the buyers brokerage gets 2.7% and the selling agent's brokerage gets the 3.3%.  Again, this is typical although the numbers can change depending on the agent/brokerage.  See the graph below on breaking down the commission split between the buyer brokerage/agent and seller's brokerage/agent.

2.  Commissions are paid at closing

Agents put in their own money, time and resources in the real estate transaction upfront.  This means if the home doesn't actually sell or the buyers decide on not purchasing a home, the real estate agent loses out on a paycheck and doens't get reimbursed for the money they put into the deal.

3.  Agents don't get the full commission

Going back a few paragraphs, it is scary working on a pure commission system as us agents are investing money in the beginning with the expectation of a successful closing.  Each agent has their own various expenses so I will details expenses that we occur.  Expenses are a huge part in breaking down Realtor commissions.- Fees, dues, and licensure costs- Photographer and virtual tours- Marketing (print, digital)- Website management- Sign installation- Stager fees- Time (hours of work to prepare the home for sale, marketing, communication, getting to closing, etc)- Brochures, fliers, postcards, etc- Vehicle expenses- Office fees and office space rentalAlso, did you know that most brokerages (RE/MAX, Keller Williams, Coldwell Banker, etc) get a portion of the agent's commission check?  They take out their percentage which can be ranging from 50% and up.  So you can see after all the bills are paid, time is factored in and the brokerage gets paid...the agent's paycheck shrinks terribly.

4.  We (David Nelson) don't charge our clients 

We don't feel it is fair to bill our clients for anything and we spend a lot to get our clients ahead of the competition!  Our team pays for all photography, staging consults, extensive print and digital marketing, brochures, and our fees.  The only time we get paid from you, the seller, is when we sell your house and that is what we do amazingly. I've heard of agent charging their clients for a photographer and marketing materials.  If the client opts to not pay for it, then the agent doesn't do it or does a cheap version.  It's really sad to see a beautiful home look so poorly online with bad photos and terrible marketing.   Don't fall for this!Commissions are a big part of real estate as nobody likes to work for free.  It is important for all parties involved to understand the breaking down of Realtor commissions.  Our team is not afraid to discuss our commission and what you, the client, gets for that commission.  FYI: if an agent charges a really low commission rate....beware.  The agent isn't going to work pro bono so they will save money on not hiring a photographer, minimal or no marketing, etc. 

Contact David Nelson via text/call at 612-986-4670 or email: David.Nelson@advplus.com for any additional questions or information on breaking down Realtor commissions.
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David Nelson

2016 Associate of the Year - RE/MAX Advantage Plus 2016 Platinum Award winner - Individual 2016 Titan Award - Imperial Home Team Twin Cities Real Estate Agent of the Month - December 2016 Member o....

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