Commission
Real estate agents earn a commission—usually a percentage of the sale price. Understand how commissions are negotiated and split between agents and brokers.
Definition
A commission is the compensation paid to real estate agents and brokers for facilitating a sale, typically calculated as a percentage of the property's sale price. According to Investopedia, agents historically earned most of their income from commissions, which were often split between the listing agent and the buyer's agent. Recent rules require buyers to sign representation agreements and pay their own agents, while sellers continue to pay listing commissions, and listing agents can no longer advertise commissions on the MLS. Commission rates vary by region, market conditions, property type, and agent experience. Flat‑fee and hourly models exist but are less common. Buyers and sellers should discuss commission structures early and ensure they're documented in agency agreements.
Why It Matters
Real estate transactions involve multiple moving parts, and Commission often influences the pace, structure, and outcome of deals. It may affect how a property is valued, how loans are approved, or how offers are negotiated. Sellers who understand the concept are more likely to prepare strong listings, while buyers who know what it means can avoid costly surprises.
Examples
Example 1: A seller highlights commission considerations in their listing description to attract more serious buyers.
Example 2: A buyer evaluates commission before making an offer to ensure their financing and expectations align.
Example 3: During closing, commission comes into play as escrow, lenders, and agents confirm details to avoid delays.
Tips
Learn how commission affects property value, financing, or negotiation strength.
Document agreements and disclosures related to commission clearly.
Consider using a flat fee multiple listingto gain broad MLS exposure while keeping control over your costs.
Additional Context
Commission is closely tied to other aspects of real estate such as financing, disclosures, appraisals, and title transfers. Understanding how these concepts connect ensures smoother transactions and fewer misunderstandings. Even if you are selling for-sale-by-owner, pairing MLS reach with clear documentation and professional guidance can make the process more efficient.
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