How is a real estate commission paid?

This is a topic that I had to read up on a little.  I definitely do not have any experience with the it.  When a house is listed on the market, the seller goes into an agreement with a real estate broker.  The real estate agent who is working with the seller is an employee of the broker.  All fees that a seller pays are paid to the broker and the broker pays the appropriate commission to the other parties.  The broker pays the agent anywhere between 30% and 100% of the commission, depending on the agent’s seniority and how well they produce.  The broker that represents the buyer is also paid a commission by the seller’s broker.  It might be a 50/50 split but more likely it is skewed, based upon if it is a “buyer’s market” or a “seller’s market”.  If it is a buyer’s market, the seller wants to structure the listing agreement so that the buyer’s broker gets a slightly larger cut.  This ensures that the buyer’s agent will be more interested in the property.

If, for the sake of making the math easier, the listing agreement sets the commission at 6%, one scenario would be that the seller’s broker receives half and the buyer’s broker receives half.  Each broker could then pay their agent half of what they received.  That would mean that the seller’s agent and the buyer’s agent are each receiving a $1,500 commission on the sale of a $100,000 house.  That would also mean that the seller’s agent would only receive an extra $300 as an extra incentive to get the sale price of that $100,000 up to $120,000.  That doesn’t seem like a very strong incentive to me.

Additionally, the broker will often require that the seller signs an “exclusive right to sell” agreement.  This means that the seller will be compelled to pay the full commission to the broker if the home sells within a certain number of days, no matter what the circumstances are.  If while under the contract the seller goes out and sells it to a relative on their own, the seller still needs to pay the full commission to the broker.

So, would I use a seller’s agent?  Probably not.  There just is not enough of an incentive for the agent to get a high selling price.  Why spend an extra few weeks marketing it if the extra $20,000 is only worth an extra $300 to the agent?  Would I use a buyer’s agent?  There is more of a chance that I would but the same issue works in reverse.  What incentive does he have for bargaining the price down $20,000?  Not much.

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