Real Estate Commission

Understanding Real Estate Commissions

A closer look at real estate commissions

The Sudbury area real estate market has shown steady growth, resulting in positive outcomes for consumers, the real estate business and the economy as a whole. However, this period of growth has also led to a number of misconceptions about the business.

Perhaps the most common misconception is that in a hot market, properties "sell themselves" and the REALTOR® has less work to do in order to earn commissions. Many consumers are not aware of how the commission structure works, and given the significant amount of money changing hands in a real estate transaction it is natural for them to want to know where their money is going. Let’s take a brief look at how commissions work.

When a consumer decides to sell their home, they often agree to pay their chosen salesperson (actually the brokerage) a certain percentage of the selling price of their home upon completion of the sale. This rate is generally specified in the Listing Agreement that is signed by the homeowner and the listing salesperson. As in any business transaction, prior to signing an agreement the consumer should firmly establish the level of service they will be receiving and the fees they will be required to pay.

When a home sells, commission is initially paid to the real estate brokerage that employs the listing salesperson. In most cases a portion of this money - often half - is immediately forwarded to the company working on behalf of the buyer for services provided in bringing the transaction to fruition. The remaining funds, meanwhile, may be distributed in a number of ways depending on the business model of the listing brokerage.

Some brokerages retain a portion of the listing salesperson’s commission for operational costs like company management, rent, office staff, employee training, franchise fees and so on. Other companies may forward all of the commission to the salesperson but charge a significant monthly fee.

A good portion of the commission earned goes toward maintaining the business operation and, of course, marketing and selling the home. Keep in mind that most real estate professionals are paid solely on commission, with no base salary. Their livelihood relies on the level of service they provide their customers and clients.

Understanding Real Estate Commissions

Questions or Comments?

Courtesy Of Lana Watier