A real estate commission is the fees paid to the property agent once the house is successfully sold. The prevalent method of payment for real estate consultants is commission, which is a percentage of the property’s selling price. This is how a majority of the agents prefer to get paid, as opposed to taking home a monthly salary. Because the commission represents a majority of the property agent’s salary, it is a considerable sum of money. However, commissions is a complex subject.
Charging commissions in Real Estate
The subject of how commissions are split between real estate brokers and agents is often unknown to people outside of the community. At Gupta & Sen, we believe that the common man or home buyers and investors must also know and understand how the brokerage amount that they are paying is split. Most home owners think that their estate agent gets a big fat commission and the amount of money paid as commission is not commensurate with the work that has been put in by the agent. That is an entirely wrong assumption in our opinion. Read this article to know how commissions are split between agents so that you can begin to understand the business arrangement between professionals in the real estate services business and also help you view your real estate agent in a new light!
The amount of money an agent makes depends on a list of factors. Most times, the agent receives payment in the form of commission for their services rendered in assisting their client buy or sell property. The commission can, either, be a percentage of the selling price of the property, or it can be a flat fee decided by the agent and their client.
Agents, Brokers and Commissions
In the US, agents are licensed professionals working under a designated broker. They cannot work independently and they cannot be paid a direct commission by their client. That is the system we follow at Gupta & Sen.
In the professional real estate services business worldwide, Brokers on the other hand, are capable of working independently. All real estate commissions are paid directly to the broker on closing the deal. Brokers then split the commission with the agents who have been a part of the deal.
The percentage of commission is negotiable for every new project. Commissions are taken out of the sale proceeds. Usually, the seller is the one to pay the commission, unless the buyer and seller come to an agreement to split the amount of commission to be paid. Many a time, the commission is factored into the asking price for the property, which means the buyer anyway pays a part of the commission even if it is not split into half.
Real estate commissions are often split among a team of people involved in the selling of the property. In most cases, the commission is split four ways, between the:
• Listing Agent (the seller’s agent who takes the property listing from the seller)
• The Listing Agent’s Broker (the broker for whom the listing agent works)
• Buyer’s Agent (the agent who represents the buyer interested in the property)
• Buyer’s Agent’s Broker (the broker for whom the buyer’s agent works)
In some situations, the commission is split among fewer agents and brokers. If a broker lists a property and then finds a buyer, that broker would then keep the full commission agreed upon. In case a listing agent assumes the role of both, the buyer’s agent and the listing agent, they would be entitled to the remaining commission after the broker they work for takes their share. Commissions are paid only when closing a deal. In some cases, real estate agents are employed by their broker and paid a monthly salary.
Commission for Real Estate Agents
To maintain integrity in the market place, it is advised the agent charge a fixed amount or a fixed percentage of the selling price as commission. As an agent, one might offer a different rate of commission depending on the situation.
• An agent might have their rules to charge a little more as commission on the selling price if they are approached for a last minute sale.
• In case of builders who own multiple properties; as an agent, one can offer them a fixed fee in exchange for their loyalty when they want to sell houses.
Different situations might demand a different commission. But all agents we believe that one must state their rules and conditions on paper and stick to them, to avoid any bad blood in their business with future clients.
In order to receive a commission, the agent needs to make sure the deal goes through.
While interacting with the potential seller, there are a number of ways in which the seller might try to convince or persuade the agent to reduce the rate of the commission fee. In this case, the seller must bear in mind that receiving a well-deserved compensation in the real estate transaction is an agent’s right. The commission fee is part of the foundation that must be laid from the minute the agent meets their client. Under no circumstances should the client feel like they can ask the agent to reduce their fee, as it is a reward for all the hard work put in by them in an attempt to make the transaction go through.
The listing process is a long and tedious one, and the agent has to dedicate every last bit of their time and energy to a new project.
Here’s a look at why an agent deserves every rupee of commission they ask for:
• A responsible and dedicated agent who is expecting to be hired by a potential client, must show up looking and sounding extremely professional.
• They must make sure that they have already covered the initial research on the property.
• They must make sure to file the plans, deed, tax assessment information, plot plan, deal restrictions, and must factor in all the possible questions the client might have.
• During the first client’s meeting, a driven and motivated agent must convey a pre-listing brief, informing the client about the listing process that will be undertaken by the agent.
• The agent must make it a point to ask all the possible property-related questions that come to mind, in order to understand the wants, needs and expectations of the client, their time-frame and reasons for selling.
• The agent must then map the property, room by room, observing the property and making the necessary notes, to help them enhance the value of the property so they can market it in a short span of time.
• After much calculation, the agent must give the seller a price quote – a figure that would inspire the client, make them feel confident enough to hire a driven and motivated agent such as the one they’ve met.
If you are a home buyer or investor we hope we have shed some light on real estate agent commissions which we hope will help you make more informed decisions in the future and also appreciate all the work your agent does for you 🙂