A common question from both home buyers and sellers is how much commission do I have to pay? Quite often many of us have our own preconceived ideas of how REALTOR©’S are paid, and a lot of the time we may be misinformed. So if you are curious on exactly how commission works, continue reading this post and equip yourself with this knowledge for the next time you’re proceeding into a real estate transaction.
What is Commission?
Commission is the percentage of money paid to the REALTOR©’S involved in any real estate transaction typically based on the selling price of a property. In most situations there are two REALTOR©’S that need to be paid. The REALTOR© retained by the people selling their home, and the REALTOR© acting for the people who are buying the home. While there is no “set” commission rate, in most transactions in our local market, it will range from about 4%-6% (of the selling price). This percentage is then split between the selling and buying REALTOR©. So for example, let’s say a home sold for $500,000 and the pre-determined commission rate was 5%. That would mean that $25,000 is to be paid in commission. That would then mean that the $25,000 would be split between the buying and selling REALTOR©, which would mean in this scenario both agents would receive a commission of $12,500.
Who is responsible for paying it?
Alright, so now you know that money is being paid to the REALTOR©, but the big question is who is paying that $25,000. If we continue to use the example from above, it is the responsibility of the clients selling their home to pay the full 4-6% commission based on the sale price of their property. From there the money is distributed to the listing and selling brokerages and then to the REALTOR© involved in the transaction. Typically, therefore, the vendors have the responsibility of paying the commission. The vendors will know in advance what their obligations are in regards to commission as it is set and agreed to in the property listing agreement. In rare instances, the buyer may be responsible for payment of commission, but this must be stipulated in the offer to purchase.
What to expect based on your role in the transaction
Selling: If you are selling your home, you are going to receive the proceeds of the transaction (that is your equity in the real estate minus any mortgage owing against the property). However, you will be responsible for the commission agreed to in the Listing Agreement you signed with the real estate brokerage. The good news is, if you are buying another property, you won’t be responsible for paying commission as a purchaser.
Buying: If you are buying a home, commission is not a concern for you, but you may have already paid your fair share prior to this purchase selling your previous home.