Practically all real estate agents work on commission. If I was to guess I’d bet it’s probably more than nine out of ten. As such most agents, including the one you just hired, are paid only when the transaction closes.
Commissions are the real estate agent’s main source of income
Even though they’re not a salried employee agents do have a fiduciary relationship withe their clients ans as such are a very strange animal indeed. In fact but for attorneys, real estate agents are the only fiduciaries and agents who work this way.
On the other hand even though they are not getting paid while trying to sell you home, agents incur expenses including but not limited to
- Advertising sellers’ houses in home magazines and papers
- Gas used while showing buyers houses for sale
- Work space at a real estate agency
- Licensing Fees
- Association Fees
- Insurance Fees
- MLS fees
Who Pays the Commission?
In residential, sales the seller usually pays the commission. In commercial transactions sometimes buyers pay some or all of the commission and the real estate agent has to negotiate that with the seller. In residential sales commission is paid at the close and for all practical purposes it comes from the proceeds of the sale. This is done to really simplify things and to avoid brokers having to chase down sellers to try and recover commissions.
As you know the terms of the commission, basically what percent of the proceeds will be paid and how it’s split between the listing agent and the buyer’s agent are agreed upon when signing the listing agreement.
So who really gets the money?
Real estate licensing law allows only licensed brokers to serve as fiduciaries. Brokers have “agents” or licensed salespeople who work for them, nd “repressnt them. In fact in most listing agreements you’s see your agent described as “Authorized Broker’s Representative” or some derivation of that. The legal responsibiltiy for operating the brokrtage falls to the broker. The agents can negotiate contracts only as proxy of the broker, so in reality you are negotiating with the broker through their representative the licensed agents.
It’s the broker’s company name and signature on the listing contract.
Is the commision neogtiable? Yes the real estate agent will propose a commission but the seler has to agree to it and can propose a counter commission offer. The commission is negotiable up to the point that the listing agreement is signed. The listing agreement is a contract between the seller and listing broker. It details the rights and responsibilities fo the broker and the seller and includes the commission amount, who pays it, and when it’s paid.
Commissions terms are spelled out in two contracts – the listing agreement that you signed when you listed the home and the sales contract that was either prepared or reviewd by you attorney.
When the listing broker lists the home in the Multiple Listing Service (MLS), the terms of the commissions are disclosed to other cooperating brokers, so they will bring their buyers to the listing and know how much they’ll get paid.
In NJ the buyer’s broker, actually their agents, usually draws up the contract. The cotract is actually the so named New Jersey Association of Realtors Standard Form of Real Estate Contract. When the buyer’s broker presents the contract to the seller’s broker, it will include the provison to collect their portion of the sales commission, presented in the MLS listing.
So when it’s all said and done a commission can be split as many as four ways:
- Listing broker or agent
- Listing salesperson
- Buyer’s broker or agent
- Buyer’s salesperson
The listing agent is paid at the close by the escrow agent from the seller’s proceeds. It is possible that the commission payment will be delayed a day or two when the buyer’s loan is funded by the lender.
The listing Broker takes his/her share and in turn, pays the listing agent and the buyer’s broker. The buyer’s broker takes hi/her share and than pays the buyer’s agent his or her share of the sales commission.
All commissions are negotiable, but sellers should keep in mind that commissions are incentives.
Constantin Hinova | Prominent Properties Sotheby’s International