Understanding real estate commissions that sellers pay

By Larry Stoller CONTRIBUTOR

The real estate commission is the full fee that sellers pay to sell their homes. It is a percentage of the sale price and it is agreed upon at the time of the listing. Every seller has the right to negotiate the commission, just as every agent may hold fast to his or her fee.

A commission could be 7%, 6%, 5%, more or less, and it gets paid to the real estate company upon successful closing. That means it gets paid to the companies, not the agents. Companies and agents have an agreement in place that states their split. Commissions are independently established and may be based upon quantity and quality of services provided. There are two rates of commissions that one should be aware of:

1. The commission rate (full fee) that the seller will pay to the listing company, and

2. The rate (coop commission) included in the full fee to be paid to the selling company.

For example: A home with a 6% listing fee is sold for $500,000. The full commission will be $30,000. Of that $30,000, a percent- age represents the coop commission to be paid to the selling company that brings in the buyer. If that coop commission is 3%, then the listing company and the selling company will each receive $15,000 (the agent will then get paid based upon their agreement with their company).

In the above example, if the listing agent brought in the buyer (which in some geographic areas is called a “hogger”) then the listing company would receive the full $30,000.

One might think that different commission rates are based upon the services that a real estate company provides. It stands to reason that more commission paid equates to more services received.

But that is not always the case, and savvy sellers should always compare the commission that they are paying to the services that they are receiving.

It is the listing agreement between the seller and the real estate company that specifies the commission and respective terms. There are different types of listing agreements (e.g., exclusive, non-exclusive, and others). In addition to spelling out the unique terms on how the home listing will be handled, the real estate commission will always be clearly stated.

Larry Stoller is a broker and Realtor with Real Estate Five of the Lowcountry. Larry@ RealEstateFive.com, RealEstateFive.com