Demystifying Realtor Commissions

Posted by Gurpreet Ghatehora on Tuesday, April 21st, 2015 at 8:53am.

How Commission Fees Work

Lots of people think that real estate is a highly lucrative business from the realtor’s point of view, which can be attributed to television shows like Million Dollar Listing. The truth is that realtor’s work long and hard to earn their commissions, but it’s not as simple or glamorous as you may think.

Who pays?

Typically, the seller is the one who takes responsibility for the commission fees. Depending on your realtor, they can charge anywhere from 3.5% - 7% on the first $100 000 of your list prices, and then (typically) it drops to 3% on the remaining value of the list price. So if your listed for $150 000, your realtor would get $7000 for the first $100 000 and $1500 on the reminder for a total of $8500 in commission – although this is just an example and all realtors fees will vary.

That’s a great income, right?

That totally depends. If the house takes a really long time to sell and you divide that amount over the period of time the house sits on the market and then considered the amount of leg work the realtor does over that time, its not so great. Additionally, the seller’s realtor doesn’t get all that money. The two realtor’s involved in the sale (buyer and seller) usually divide the commission between them (not always 50/50) and then if your realtor works for a firm, the firm also gets a slice of that pie. At the end of the day, your realtor may only make a couple thousand dollars off your sale, regardless of how much work it involved. This is why realtors juggle multiple listing and are always running around to organize viewings, open houses and the like.

The legality of it all

Choose a realtor and sign a contract with them. This is the only way to protect yourself from being scooped up by another realtor against your will, or inadvertently involving other realtors in your sale (causing the commission to be split even further).

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