Commission

What is a real estate commission?

Either a seller or buyer can hire a real estate broker.  If employed by a buyer, they have been secured to help them find a property to Commissionpurchase.  If secured by a seller, they have been hired to find a buyer for the seller’s property.  The fee which is paid by either a buyer or seller to the broker for their services is called a commission.

Real estate brokers hire real estate agents to represent them in real estate transactions.  It is a strange situation, as most real estate agents are independent contractors.  Or, in other words, self-employed.  Real estate agents represent their broker who represents either the seller or buyer, but usually the seller.  The seller or buyer the broker represents is called a principal or client.

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Is a commission a guaranteed source of income?

Nope.  A broker will only be paid if a sale or purchase takes place.  If there is no sale or purchase, there is no pay.  The seller enters into what is referred to as a listing agreement with the broker, which is an employment contract.  In the employment contract it states if the broker is the direct cause of the sale, they will be paid a commission.

As an agent how do I know how much of the commission I will receive?

Great question, and one you certainly should ask as you interview brokers to find out which company you want to join as a licensed agent.  You will sign an agreement to represent a broker, and in the contract, it will say exactly how you will be compensated.

Do brokers ever split commissions?

Yes, they do.  The commission on a sale is usually split between the broker representing the buyer and the broker representing the seller.

Who pays the commission?

The property seller pays the commission.  I guess you could say the buyer helps since the seller uses the proceeds from the sale to pay the broker, and the proceeds came from the buyer.

What if one agent represents both the buyer and sellers?

Then it is not split.  This situation is called a dual agency and is legal in some states.  In those states where it is legal, generally written informed consent must be obtained before engaging in dual agency.

What would a math question look like on the real estate licensing exam related to commissions?

Here you go:

A broker employs an agent and agrees to pay them 40% commission on all listings they sell. The agent lists a property for sale for $169,000, which is sold by another broker on a 50/50 commission split of the 6% commission. How much will the listing agent receive?

A.  $2,028
B.  $5,070
C.  $10,140
D.  $12,500

Answer:  A
Explanation:  The total commission on this sale is $10,140 (6% of $169,000) of which the agent’s broker receives 50% ($5,070), of which 40% ($2,028) is paid to the listing agent.

What else can help me prepare to pass my real estate licensing exam on my first attempt?

Other tips to help you pass your real estate licensing exam on your first attempt:

Real Estate Test Taking Tips

How to Pass the Real Estate Exam

Real Estate Exam Math Made Easy

Also, check out our question of the day videos on our YouTube channel:

PassMasters Real Estate Exam Prep YouTube Channel