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How Home Sales Real Estate Commissions Are Split


How to Sell Properties For Top Dollar Quickly Without Paying a Real Estate Agent...


Most home sellers have no clue how home sales listing commissions are divided when a sale occurs. But they are sure realty agents are grossly overpaid for very little work, especially when a home sells within a few days of being listed for sale.

Regardless of the commission rate, there are usually four parties involved. They are the listing broker, the listing agent who represents that broker, the selling broker, and the selling agent who represents that broker.

For example, suppose you have a $500,000 condo to sell and you agree in the listing to pay a 5 percent sales commission. A buyer offers to purchase for the full $500,000 asking price. When the sale closes, that $25,000 sales commission will go $12,500 to the listing brokerage and $12,500 to the selling brokerage. Of these amounts, the listing agent will receive $6,250 (or more depending on the agent's commission split with the broker) and the selling brokerage will receive $12,500 with the selling agent receiving $6,250 (possibly more, depending on that agent's commission split with the brokerage).

In other words, of the 5 percent gross sales commission, 2.5 percent goes to the listing office and 2.5 percent to the selling office. Those amounts are then divided with the individual agents, according to their commission split agreements with their brokerage office. 

But most home sellers and buyers don't understand their agent might take home as little as 1.25 percent of the gross 5 percent sales commission in our example.

Of course, the agents can agree to alter the commission split, such as 2 percent to the listing office and 4 percent to the selling office.

However, if either the listing agent or the selling agent works as an independent real estate broker, he or she would be entitled to keep the entire 2.5 percent listing or selling share in our example. Or, if the listing agent also finds a buyer (called a dual agency), then the sales commission is split between the listing agent and the brokerage.
Disadvantages Of Low Sales Commissions

As a home seller, if you think it would be smart to reduce the traditional 6 percent sales commission to 5 percent or 4 percent at the time of listing your home for sale, think carefully.

When your listing shows up in the local multiple listing service with only a 2 percent sales commission to the selling agent, do you think many agents representing buyers will show your home when similar homes offering a 3 percent commission split to the selling agent are available? Of course not.

Statistics show most home sales involve both a listing agent from one brokerage and selling agent from another brokerage. The sale is usually a result of the local MLS, the most powerful sales tool available to home sellers and their listing agents.

Another disadvantage, if you can convince your listing agent to accept a reduced sales commission is your listing agent might not be enthusiastic about selling your home. If your listing agent has other homes listed for sale at 6 and 5 percent commissions, but your home is listed at only 4 percent commission, he or she might not put as much time or effort into selling your low commission home.

Do you think your listing agent, who receives 1% of a 4% real estate commission will be enthusiastic about advertising your home in the San Diego Union where an average classified ad costs about $100 per day or in one of the color real estate magazines where the cost may be $1,000 per insertion? Your home, more than likely, will only be listed in the San Diego Multiple Listing Service and real estate agents who can not find another home to sell their buyer may suggest your home to their them.

Gar C. May, Real Estate Broker
1357 Hornblend Street
San Diego, Ca 92109
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