Real Estate
Listing Contract & Commission
There
are various possible ways to transact in real estate; however real estate
brokerages normally earn its commissions or fees as follows.
A
seller and a real estate broker sign a listing contract. In such a
transaction, the
seller avails the
broker's service to get his real estate property listed for sale. The
broker here expects a commission for the services on successfully finding
a satisfactory buyer for the property. Usually such commissions are paid
only upon finding a satisfactory buyer. The details of such payments are
normally detailed in the listing contract. In the United States 6%
commission is considered a standard for residential real estate, and is
typically paid by the seller. The sum is generally split between the
listing agent and the selling agent in equal shares. However, brokers may
charge different rates to as much as 10% while some may even offer their
services for as low as 1%. Fee-for-service real estate brokerages are also
increasing in popularity. This is however not the norm across the world.
For example in Australia, listing agents are paid 1% and agents are seldom
used by buyers. If they do, they pay out of their own pockets.
Real estate commissions
at times become a point of contention. In the last twenty years home
values in many areas have quadrupled. In spite of this the actual work,
local knowledge, and expertise required by a real estate agent has seen a
downward trend primarily due to technological improvements and the
internet. The increase in the number of licensed agents may also be a
major contributing factor to this. There is another controversy that
exists for the commissions claimed by real estate agents. In case a
listing agent manages to sell a property for an additional $200,000, he
would in turn make an additional sum of $6000. In theory this is done to
motivate him or her to get the best dollar price for his buyer's real
estate. The controversy is however even more debated when it come to the
selling agent. If the buyer bargains to get a better rate for the property
from the existing rates and negotiates a price lower by $200,000, then his
agent would eventually make $6000 less. It is therefore in the agent's
favor to counsel his client to buy the property at a much higher price.
There arises a conflict of interest and thought for agents who target
short term benefits, since an agent is only likely to make a lot more
money from contented client's subsequent referrals which provide word of
mouth publicity than foul play on business dealing.
Suppose, for example, an MLS
commission split was 50/50. The listing broker would get 50% of the
commission, and the broker who found the buyer would get the other 50%.
Within each agency the broker would, according to the contractual
agreement between the broker and the salesperson, also split his or her
share of commission with the salesperson who had actual contact with the
seller or buyer. Only brokers may receive commissions, but they may share
them with salespeople who work with them.. When a property is sold out of
an MLS, the licensee who makes the sale is considered to be a subagent of
the listing owner.
