Are you toying with the idea of becoming a real estate agent? You have probably heard how some have made a fortune by selling other people’s properties and are tempted to replicate their success for yourself. Before making it your career, there are a few things you should know, and one of the most important is how real estate commissions work.
Here’s out primer on real estate commissions and how to take your cut after you have made a sale:
Who Pays the Commission?
As a real estate agent, you will work for a broker (or brokerage) and receive your commission from them after the deal closes. But who pays your broker? It is natural to assume that the seller pays the commission because it is he who is making money out of the deal. This is true in most cases, but the matter gets a bit complicated sometimes. In very rare cases, the buyer directly bears a part of the burden depending upon what agreement he has made with his broker. But since the commission is paid out of the sale price, at the end it really makes no difference whether the seller or the buyer pays it.
How Much is the Commission?
In Canada, the average brokerage fee (or commission) is 5% of the sale price. Here, you must understand that the commission is paid out of the cost of the property and not in addition to it. This means that if the sale price of a home is $350,000, then the seller can expect to walk away with $337,750 less the Harmonized Sales Tax (HST) and other fees that may be applicable. The final amount received by the seller is the same whether he pays the commission or the buyer does.
How is the Commission Distributed?
The seller hires a broker and so does the buyer; so the commission is split between the seller’s broker and the buyer’s broker as agreed between the two parties prior to the sale. The split is usually on a 50/50 basis but occasionally one gets more than the other. If the seller has used a listing service, such as the MLS®listing, the commission is split between the listing agent and the buyer’s broker (for bringing the buyer).
How Much Can you Expect to Make?
Agents are typically a percentage of the total amount received by the brokerage. The actual amount comes to be even less when advertising fees, office expenses and other fees are deducted. As you become more experienced, the percentage will usually increase. Some brokerages offer plans where you may receive 100% of the amount and pay the broker a desk fee or a deal fee.
Becoming a real estate agent is an exciting experience. By understanding the basics upon how commissions work, the percentages made and all other expenses, you are in the right mindset to start a real estate career. In the event that your commissions have not come through due to late closing dates, consider a commission advance to keep your cash flow healthy!