Commission: Who gets paid? How? How much? Who wins? Who loses? In any property transaction, the participating brokers and their sales agents receive commission. It is essentially their only source of revenue. With rare exception – No transaction means no revenue. The more you understand “the rules” under which they operate, the better you will understand how and why brokers and sales agents behave the way they do.
Except for private and “for sale by owner” sales, the market is dominated by individual agents (sales associates and brokers), licensed by the State of
Sales Associates and Broker Associates work as independent contractors for Brokers. (Broker Associates have taken the same course material and passed the same examinations as Brokers but they elect to be involved with clients and sales rather than owning or running their own Broker’s business.) Each individual has an independent contractor agreement with their Broker. One of the elements of this agreement is the determination of the commission split between the Sales Associate and the Broker. The amount the Broker receives from a transaction is determined by the listing agreement. This amount is then split by the Broker and the Broker’s participating agents based on the independent contractor agreement.
A listing agreement is a contract between the property owner and the Broker chosen to list the property. The Sales Associate only solicits and obtains the contract. Therefore, a listing agreement is in force only after it is accepted and signed by the Broker. The agreed commission is determined only by negotiation and final agreement between the property owner and the Broker. The Sales Associate represents the Broker but cannot agree to a commission other than their Broker’s standard rate without permission from the Broker. Read the listing agreement very closely. Even if you withdraw your listing, you may be required to pay commission to the Broker if your property is subsequently sold within the term of the original listing agreement.
If one of the listing Broker’s agents secures a buyer for the listed property resulting in a sale, the Broker is entitled to the entire commission specified in the listing agreement. Nearly all listing contracts allow for the listing Broker to split the commission with a cooperating Broker. This split percentage is determined by the listing Broker and must be specified in the listing agreement if the listed property is to be placed on the Multiple Listing Service (MLS). The distribution of the commission is governed by the listing agreement. Commonly, the split is 50%/50% between the seller Broker and the buyer Broker. However, some Brokers prefer to give the cooperating Brokers less than 50%, keeping more than 50% themselves. The listing client must determine whether they feel any additional effort used to support the additional commission will offset the fact that cooperating Broker’s agents may be less inclined to show property with a lesser split to them. At closing, the closing agent, often a title company, distributes the funds to the respective Brokers. The Brokers then pay their agents the portion of the Broker’s commission specified in their mutual independent contractor agreement.
Where a single developer controls a project (as in most gated communities) they often have their own “captive” sales staff. Their staff’s single focus is typically within the confines of the development, consisting of:
New construction directly from the developer.
New construction by builders designated by the developer.
Resale of previously owned homes within the development.
Captive sales offices are not always members of the Association of Realtors®. (All licensed sales agents must fulfill continuing education requirements, but Realtors® have an additional obligation to complete ethics training.) If not, their listings cannot be posted to the MLS. Especially in gated communities, buyers and sellers are restricted in their opportunities. Homeowner Association constraints on signage further limit flexibility.
While a very few developers continue to restrict the activities of outside agents in their developments, most have developed working relationships. If a prospect is registered by the developer without assistance from an outside sales agent, outside agents are prohibited from participating in the commission. If an outside agent brings a prospective buyer, most developers will co-broke (split the commission) with the agent’s Broker. It’s very important to know this relationship. Often agents will spend a great deal of time and effort with a client, introduce them to a developer’s sales staff, only to find out that they had previously been registered. Even if a client simply requested information from the developers web site, via phone, or if they otherwise provided their name and contact information, they are considered “registered.”
If a client works with several different agents, conflicts over commission obligations often result. Further, agents may not be fairly compensated for their efforts if another agent can claim a precedent activity. These situations are ultimately resolved, but not always without rancor or administrative or judicial intervention. Clients are best served when they take the time to find a highly qualified and experienced agent that specializes in the type of property being bought or sold. Work with that agent exclusively unless you change your criteria.
The prevailing commission rate for sale of existing homes in the
This sounds like a lot, but keep in mind that only 3562 residential units were sold in
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