Listing Commissions and Related Issues

About Commissions

In most areas there is a customary percentage that real estate agents expect to earn as a commission. When completing the listing agreement, you and your agent will negotiate and agree on the amount of the real estate commission.

When you discuss commission with a listing agent, you should keep in mind that there are usually two agents involved in most transactions. Most of the time, only part of the commission goes to the listing agent's company. The other portion goes to the company representing the buyer.

Some commission-related questions you could ask:

Will your property be listed in the Multiple Listing Service? Being listed in the MLS expands your sales force. Every agent is invited to bring potential buyers to your property. This larger supply of buyers effects your pricing power and the ability to sell your home more quickly.

What is the effect on the company representing the buyer? Since part of the commission usually goes to the company representing the buyer, you may want to ask whether that portion of the commission offers the customary amount. As mentioned above, the more agents that show your property, the more pricing power you have and the more quickly your home will sell.

What is the effect on marketing? Very few properties are sold through advertising or open houses, but it does happen. Most often, those ads generate calls from potential buyers or sellers, who end up as clients for real estate agents -- and you want agents to bring potential buyers to your property. Advertising your property to other agents has a higher impact than direct advertising to consumers.

Will you be tied in to other services? A real estate company with bundled services has more income opportunity which may allow them to offer lower prices. However, there are a few companies whose additional services are not priced competitively with opportunities you can find on the open market. You should be sure to ask lots of questions and determine whether you are limited to certain choices or you have the freedom to also explore the open market.

How and When Listing Commissions are Earned

Your listing contract specifies a listing price. Your agent's job is to bring a "ready, willing and able" buyer to present an offer. If you reach agreement with the buyer, then the agent has done his job and earned the commission. Once the sale has closed, the real estate broker gets paid from the proceeds of the sale.

If the buyer proves unable or unwilling to conclude the sale, the house is placed back on the market and the agent has to begin earning his or her commission all over again.

However, if the seller backs out or does not accept an offer that meets the price and terms of the listing agreement, the listing broker has still earned the commission. They may want to be paid, even though you did not actually sell your home. Therefore, it is very important to carefully consider every detail when completing your listing contract and accepting an offer to buy your property.