Who Pays the REALTOR Fee?
How Does an Associate Broker / REALTOR® Get Paid?
Example of Commission Paid to Your Associate Broker / REALTOR®
To understand who pays REALTOR® fees-- whether it's sellers or buyers or both -- first take a look at how a real estate Associate Broker / REALTOR® is paid and how they share cooperating commissions. At Steinborn & Associate Real Estate, our team of Associate Brokers / REALTORS® work on 100% commission, non-salaried. The above chart is a calculation showing how a commission is paid and the net effective income. Don't be embarrassed if you don't know how commissions work. Steinborn & Associates Real Estate has had clients who didn't know this formula, even though the company had sold their home, represented them to buy a new home and then later listed that home for sale.
How Real Estate Commissions Work
· Real estate Associate Broker / REALTOR® works for a real estate Qualifying Broker.
· All fees paid to a real estate Associate Broker / REALTOR® MUST pass through the Qualifying Broker.
· Only a real estate Qualifying Broker can pay a real estate commission.
How is a Real Estate Associate Broker / REALTOR® Compensated by the Qualifying Broker?
Divisions vary. At Steinborn & Associates Real Estate, a brand new Associate Broker / REALTOR®, without any real estate experience, can receive as little as 55% of the total commission received by the brokerage. From that amount, other office expenses may be deducted. A top producing Associate Broker / REALTOR® can receive 80% and pay the brokerage a certain level of monthly office fees.
Listing Brokers' Fees:
The most common type of listing agreement between a seller and her Associate Broker / REALTOR® gives that Associate Broker / REALTOR® 's Qualifying Broker the right to exclusively market the home. In return for bringing a buyer to the table, the seller agrees to pay a commission to the Qualifying Broker. Typically, this fee is represented as a percentage of the sales price and is shared between the listing brokerage and the brokerage who brings the buyer.
Divisions of fees among brokerages is not always fair or equal, just like life. For example, a seller could sign a listing agreement for 7% that stipulates the listing broker will receive 4% and will co-broker 3% to the selling broker. It's not always a 50/50 split. In a buyer's market, sellers might want to consider asking the listing broker to give a larger percentage to the buyer's broker. In a seller's market, the buyer's broker might receive less. There is no set formula. However, at Steinborn & Associates Real Estate, we maintain a 50/50 split with the co-brokerage community as we believe it is the right way to do business. It is the exception due to unique circumstance, not the rule, to retain more than 50% of the listing commission.
Seller Pays the Buyer's Commission
Under a Buyer's Broker agreement, the named brokerage and Associate Broker represent the buyer. The fee paid to the broker most commonly is paid by the seller. Some buyer broker agreements contain clauses that will compensate the brokerage for the fee it is due less the amount paid by the seller. For example, a cooperating listing might offer to pay a broker only 2.5% of the sales price, whereas the brokerage operates at fees of 3%. The difference of .5% could be paid by the buyer if the broker chooses not to waive that amount. This is negotiated between the Associate Broker / REALTOR® and the Buyer.
Buyer Pays the Commission Directly
· The seller is then not obligated, under most listing agreements, to compensate the listing broker for more than the listing side or portion of the commission.
· Often sales prices are reduced to reflect the amount the buyer is paying.
· Sellers can also credit the buyer the commission and the buyer, in turn, credits the brokerage.
Who Really Pays the Commission?
It can be argued and, quite rightfully so, that the buyer always pays the commission. Why? Because it's typically part of the sales price. If the seller did not sign an agreement to pay a commission, the sales price might have been lowered. And therein lies the appeal of buying homes through unrepresented sellers because, given the same logic, those prices should reflect a net sales price without a commission. But those sellers haven't quite figured this out yet which causes potential buyers of those listings to be consistently disappointed. For all the reasons stated above, commissions are rightfully earned by the Associated Broker and his or her brokerage due to hard work, skilled facilitation and expert negotiation skills.