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Saturday, October 16, 2021

Understanding Why A Real Estate Commission Split Matters

Real estate commission splits are commonplace in the industry, and they’re used to provide financial support to the agents that show a client’s home. Many sellers will try to opt out of paying a commission fee or low-ball the agent. Even if the agent accepts your offer, there are many negative consequences to underpaying the people facilitating your real estate transaction.

Understanding the Commission Split

Clients that sell their home to an agent must agree to pay them a certain percentage of the home’s closing costs. The typical realtor commission rate is between 4.50% to 6.50%, and with no standardization system, most agents will charge a rate that’s consistent with the market. However, the agent doesn’t receive the total commission rate and must share it with a broker.

The commission split between the broker and agent range depends on their relationship. Some compensation models will be traditional (split 50/50), salaried (agent is paid a rate consistent with other jobs), or office fee (agent pays for the cost of operation but receives 100%). Since calculating this rate can be confusing, this real estate commission calculator can help.

Consequences of Lower Commission Rates

Agents that accept a lower commission rate are almost always getting the short end of the deal, especially with brokers who market their “rock-bottom” prices to clients.

That isn’t always the case; some agents will take a lower commission rate to get experience and still split the amount 50/50 with their broker. When paying a lower commission rate, you get what you pay for.

Whereas it’s easier for landlords to fill vacancies straight from a property management app because tenants aren’t purchasing the space, buying a home is a huge purchase. It’s important to keep your real estate agent happy so they take the time needed to sell your house.

If you short your real estate agent, the following is likely to happen:

  1. Agents are less likely to show your home. Other clients that are paying the agent a higher commission rate will have priority over you, regardless of why you’re paying less.
  2. You create ill will in the pool of buyer’s agents, meaning sellers looking to buy new homes won’t be pulled in your direction. You’ll quickly notice a lack of interest.
  3. Without knowing, agents may tell interested buyers not to buy the home for various reasons. They won’t outright lie, but they won’t hide the gritty details, either.
  4. Buyers will quickly notice that no one is buying your home or is interested in your property, which means your house will stay on the market longer, causing you to lose money. You’ll likely lose the ability to get top dollar for your home.

You’re not really saving money in the end when the agent isn’t thrilled to be selling your property. Agents make no money unless they make a sale, and that’s their incentive to show your home. While it’s nice to assume that agents will sell your home out of the kindness of their own hearts, we also need to understand that agents need this money to support themselves.

How to Ensure the Real Estate Commission Split is Fair

The easiest way to keep the commission split fair on the buyer or sellers is to give the agent what they ask for. If you’re unhappy with the commission percentage offered, don’t negotiate. It’s better to look for another agent that offers the rate you’re looking for and/or can afford.

If the agent provides how they split their gross commission amount after the home’s transaction, you can further determine what to pay your agent. It’s best to avoid discount brokers that almost always take a higher commission percentage, as the agents they provide are either unhappy with their working conditions or are inexperienced at selling. 

Most agents have to pay for costs related to selling your home that they pay off after the home is bought, like marketing materials, signage, technology, and other office supplies. On top of that, they need to pay for client acquisition, insurance premiums, national, state, and local dues related to real estate, and much more. There are endless hidden costs to being a realtor.

To ensure the prompt sale of your home, find an agent that’s experienced, happy with their compensation, and personable. If the agent likes you, they’re more likely to put your home first.

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Daniyel Carlson
Daniyel Carlson is a Young Researcher in the field of Data Science & Analytics having research experience of more than 8 years. He has a Masters in Computer Engineering and currently serves as an Editorial Assistant in IGI Global, United States of America. Daniyel also holds honorary positions in the Associate Member of Institute of Research Engineers and Doctors, International Association of Computer Science and Information Technology, International Association of Engineers, Society of Digital Information and Wireless Communications.

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