How Much Real Estate Brokers Are Paid?
Yes, we're talking about real estate commissions here.
For more than 30 years, the compensation framework in the real estate industry was structured for the seller to pay the listing firm and for the listing firm to “share” its compensation with the buyer brokerage firm. This framework was a vestige from “sub-agency” where every broker represented the seller and brokers did not work directly for the buyer. Sub-agency was eliminated in the mid-1990s with the adoption of the Agency Reform Act (RCW 18.86) and the creation of buyer’s agency. Yet, the “commission sharing” structure remained.
It is customary to have sellers pay both listing agent's and selling agent's commissions. That came long ago with buyers in mind, to ease them into buying process, because they are already burdened with lots of other expenses for home purchase. Therefore, sellers offered to help buyers with paying both commissions, and the practice remained until today.
Keep in mind, though, that real estate is largely flexible field, and that you can (re)negotiate almost anything. This said, you can negotiate who is going to pay each broker (agent). Northwest Multiple Listing Service was proactive about this flexibility, and in October 2022 it brought new forms to add options for sellers, buyers, and brokers as to how the brokers are to be compensated.
The revisions further enhance transparency regarding broker compensation and create additional opportunities for consumers and brokers to discuss and negotiate compensation. The changes provide greater flexibility for consumers and brokers when selling and purchasing real estate and promote innovation and competition in the market.
Sellers now have options to not pay selling (buyer's) broker at all, to pay discounted amount or pay as usual.
Now we came into how much is that usual. Well, we say full price commission is to be 3 percent of the purchase price.
The listing agreement provides options for compensation to address transactions when a buyer is unrepresented or when the listing broker acts as a dual agent. For these situations, the parties may want to agree to a different compensation amount, as the services provided by the broker may change.
The “tail provision” provides that if the seller sells the property after the expiration of the listing agreement to a person who became aware of the property through the efforts of the listing firm during the listing, the seller still owes compensation.
Buyers usually don't pay for their broker, because he/she is already promised to be paid by seller at closing. Buyers may be in the situation to pay for their own broker, which is called selling broker. Those situations are:
If buyer wants to purchase a property where seller is offering to pay for selling broker less than agreed upon price with buyers
If compensation by seller is not offering to pay for selling broker at all (note that brokers in that case have no obligation to show that property to their buyers at all)
If buyer wants to purchase property marketed directly from owner (FSBO)
In that case, buyers and their broker will state in Buyers Representation Agreement that buyer will compensate their broker in such circumstances, and what amount.
Brokers can be also paid flat amount, rather than percentage. Usually, such brokerages are transaction brokerage only, and they may not represent their clients, rather they will only input the property into MLS for a fixed price.
When and how brokers are paid?
You may be aware that no matter what jobs brokers did, they are paid only at the closing of the property (when the Purchase and Sale Agreement is finalized).
Escrow (closing) agent is in charge for funds disbursement. At the closing, agreed upon commission portion goes to the listing and selling office, or firm. Offices then take portion of total commission for themself, as agreed with the broker in their contract, and after that broker is paid the remaining commission.
CONCLUSION
Real estate is highly negotiable field. It is norm to pay brokers 3 percent each (6 percent total paid by sellers), and for luxury real estate norm is way lower, around 2%, but always discuss with each broker their compensation. They may be willing to work for way less than that.
If you are thinking about selling, I may offer you great discounted price for a great real estate service.
BUYERS - above the fact that you don't pay me directly, I always give some portion of my commission back to my clients, because you deserve it! Let me guide you through sometimes overwhelming process of buying your new home. Trust me, with me on your side, the entire process will be seamless.
