Buying or selling a home can be stressful. But an experienced real estate agent can guide you through the process and ensure that things run smoothly. In exchange for their hard work, real estate agents earn a commission. If you’re wondering how agents get paid and you’re not sure who’s responsible for paying the fees they charge, here’s what you need to know.
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How Much Is the Commission?
Real estate commissions can vary. But agents typically receive between 5% and 6% of the home sale price. So if a home sells for $300,000, the agent’s cut could range from $15,000 to $18,000.
How Commissions Are Divided
Usually, there are two agents in a real estate transaction – one on the buyer’s side and one on the seller’s side. In some cases, the commission is split down the middle so that each agent receives an equal cut. How much money each agent actually makes, however, depends on whether they’re working for a broker.
Typically, brokers get paid first and then split their commissions with the agents. If the agent has a track record of successfully completing sales, the broker may agree to split their commission 50-50. But if a broker’s working with a new agent, the broker might want a larger piece of the pie.
Going back to our previous example, if a buyer purchases a $300,000 house and the commission is 6%, each broker would receive $9,000. If they divide it equally with the agents, they’d all pocket $4,500. But if there’s a 60/40 split, each agent would receive $5,400 and each broker would take home $3,600.
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So Who Pays?
In most cases, it’s the seller’s responsibility to cover the commission for both agents involved. This fee is usually factored into the home sale price. Even if the buyer isn’t responsible for paying their agent, the seller might increase the sale price, especially if they’re agreeing to pay for some of the closing costs.
The good news for sellers is that the agent’s commission might be tax-deductible. Being able to deduct the commission fee from the sales amount can help offset the taxes owed on any profits realized from the transaction.
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When the Home Doesn’t Sell
If you’ve put your home on the market but you can’t get a bite, you most likely won’t have to pay the agent’s commission. But it’s a good idea to read the fine print of your contract carefully to make sure that’s the case. In some instances, you could be on the hook for paying the commission even if the home doesn’t sell.
For example, if you (the seller) decide to kill the deal, you could still be expected to pay up. Asking your agent up front whether there are any contingencies that might automatically make you responsible for paying the commission can help you avoid a nasty surprise.
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