Real Estate Commissions

Real estate commissions are normally paid by the seller but not always. You can offer to pay the real estate commission as an incentive to buyer to accept a lower price. It’s also common for a seller to submit a counteroffer that requires you to pay the commission. Whether you’re the buyer, seller, or realtor, commissions are a straight percentage…or a half percentage…or even a quarter percentage.

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Real estate commissions run 3 to 8 percent with the national average hovering around 5 percent. In most cases the commission is split between the listing agent and the selling agent. In some cases there may be multiple selling agents. Even if there are eight selling agents, the commission is one flat fee stated in the original agreement between the seller and the listing agent.

Real estate commissions can be calculated by multiplying the price by the realtor’s commission. Let’s say the house is priced at $300,0000 and the commission stated in the listing agreement is 8%. You would multiply $300,000 times 8% or .08. The commission would be $300,000 x .08 or $24,000. If the seller counteroffers and asks you to pay the real estate commission, you’d have to pay $24,000 to the realtors involved. Knowing the commission helps you prepare your offers to the seller. In the above example, you might offer $280,000 with the agreement that you will pay the real estate commissions. In that case, the commission would not be $24,000. The commission would be 8% of the sales price, which would be $280,000. Eight percent of $280,000 is $22,400.

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If you intend to flip houses, you’ll need to pay special attention to the real estate commissions. Few realtors are going to be eager to work with you if you’re buying cheap houses. After all, even an 8% commission on a $30,000 house is only $2,400. Since the commission would be split between the listing agent and the selling agent, each would receive only $1,200.

Real estate commissions are often split three ways, four ways, sometimes 10 ways. As a general rule, the commission is split 50/50 between the listing agent and the selling agent. However, most agents work for a real estate agency. The agency itself would normally receive between 40 and 60% of the commission. Let’s focus on the selling agent. Let’s assume the commission for a $300,000 house is 8%. The total commission is $24,000. The listing agent (or agency) receives $12,000 and the selling agent (or agency) receives the other $12,000. If the selling agent works for an agency, the agency is probably going to receive 40 to 60% of the commission. Even at 40%, the agency will receive that percentage of the selling agent’s $12,000. Eight percent of $12,000 is $4,800. That leaves the selling agent with $7,.200 after the agency’s split. If you’re buying houses to flip under $100,000, your buyer’s agent isn’t going to make much cash. As an incentive to help you find more houses to flip, you might want to consider offering the buyer’s agent a cash bonus for helping locating the properties. For example, you could offer the buyer’s agent a $2,500 bonus on top of any commission he or she might receive from the actual purchase of the house to be flipped.


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