First, it must be stated that commissions are by law completely negotiable. However, the “traditional” real estate community is still trying to hold on to the 6% commission structure–in some cases even move it up to 7. For illustrative purposes, we will assume a 6% commission because it is still the most prevalent.
There are agents and there are brokers–each must be licensed by the state. An agent must work for a broker for a period of time and complete educational requirements before being eligible to apply for a broker’s license. Offices like RE/MAX and Ebby Halliday are brokers.
In the typical real estate transaction, the commission is split 4 ways. The 4 entities are: 1) the “listing agent” who took the listing, 2) the broker who the listing agent works for, 3) the buyer’s agent, and, 4) the buyer’s agent’s broker.
For purposes of illustration, let’s assume a traditional 6% commission and a $100,000 property sale:
- $100,000 X 6% = $6,000
- Half, or 3%, typically goes to the listing office, and the other half goes to the buying agent’s office: $6,000 / 2 = $3,000
- The agent (whether it’s the listing agent or buyer’s agent) then splits that $3,000 with his/her broker who he/she is employed by.
That split varies depending on the agreement the agent has with his/her broker. 60% to the agent and 40% to the brokerage office is common, but the split can be 50/50, 60/40, 70/30, etc. Some brokerage offices charge the agent a fixed monthly fee for “rent” or whatever they choose to call it, and the agent gets 100% of the commission. Assuming a 60/40 agent/broker split, the final scenario looks like this:
- Listing Brokerage Office: $1,200 (40% of half of the 6% commission)
- Listing Agent: $1,800 (60% of half of the 6% commission)
- Buyer’s Agent’s Brokerage Office: $1,200 (40% of half of the 6% commission)
- Buyer’s Agent: $1,800 (60% of half of the 6% commission)
If an individual has a broker’s license, and sells the property he/she listed, there are no splits and that person gets the full 6%. If the agent who lists a property also sells that property, he/she only has to split the 6% with his/her sponsoring broker, and ends up with $3,600 (60% of $6,000).