How Much Do You Know About Real Estate Commissions?
May 6, 2017
May 6, 2017
Most people know that using a real estate agent to buy or sell a house involves a commission, but many buyers and sellers don’t know how much the commission is, who pays it, or when it’s paid. Here’s a quick and easy overview of the way real estate commissions work in many (though not all) residential housing sales:
What Is A Real Estate Commission, And When Is It Paid?
A commission is the fee a real estate agent agent earns for assisting a buyer or a seller (or both) with the purchase and sale of a home. Although the commission is sometimes owed (and must be paid) if the sale doesn’t close, in most cases the commission is due at closing and paid to the real estate agent(s) directly by the escrow company that handles the escrow in the sale of the home. (When houses sell without an escrow, alternative arrangements must be made if commissions are involved.)
How Much Is A Real Estate Commission?
Commissions are normally based on a percentage of the sale price of the home, and can vary substantially, either due to the custom in the geographic location where the home is located or as a result of negotiations between the seller and his or her listing agent. The commission amount is customarily fixed in the listing contract between the seller and the listing agent; however, in cases where there is no listing contract, the commission may be fixed by the purchase and sale contract between the buyer and the seller, or in another document altogether.
Who Pays The Commission?
The seller customarily pays the commission for both the listing agent and the buyers’ agent (if any), because the commission is taken out of the purchase price of the home. Although the buyer pays the purchase price (often partially through a purchase money loan), the amount the seller receives is reduced by the seller’s share of closing costs, any credits given back to the buyer, and the amount of the real estate commissions.
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