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          If you are considering placing your home on the market for purchase, you may not be aware of how the commission structure works, and given the significant amount of money changing hands in a real estate transaction it is natural for you to want to know where your money will be going.  Let’s take a brief look at how commissions work...

 
          When a homeowner decides to sell, they agree to pay the listing broker a percentage of the selling price of their home upon completion of the sale.  Traditionally, this rate is 6-7% of the sales price.  When the home sells, this percentage is paid as a commission to the listing real estate brokerage.  In most cases a portion of this money - often half - is paid to the real estate company working on behalf of the buyer for services provided in bringing the transaction to fruition.

           The commissions earned by both the listing brokerage (the broker which represents the seller) and the selling brokerage (the broker which represents the buyer) are then disbursed according to the business arrangement for each brokerage. Generally, there can be anywhere from a 50/50 split between the real estate agent and the broker to an 80/20 split with the agent receiving 80% of the listing or buying commission and the remaining 20% retained by the broker.

 

          In reality there are four parties which will split the commission paid by a seller;  the listing broker, the Realtor who works for the listing broker, the selling broker, and the Realtor who acts as the "buyer's agent" and works for the selling broker.

          Yes, there are "discount brokers" who offer reduced sales commissions from the customary local sales commission rate. But the BIG problem for sellers listing with  a broker who "discounts" the commission is that the lower sales commissions don't encourage cooperation from buyer's agents who are often reluctant to show low commission listings unless there is nothing else available to show their buyers.  In a market where there are a high inventory of homes for sale, a home with a discounted commission may not be shown at all.  The seller who has negotiated down the sales commission for his or her home will more than likely not have to pay any commission at all because it more than likely will  not sell!  And if they do receive an offer they are generally more eager to negotiate the purchase price because of the lack of showing activity.  The seller who negotiates paying a reduced commission on the sale of t their home essentially sacrifices much more in the negotiating process with a buyer than the 1-2% savings in the listing commission.

 

  

 

          Based on my experience as a successful real estate agent, there is only one circumstance when a home seller may consider negotiating a reduced sales commission from the customary local "going rate" without incurring any detrimental consequences from doing so.   This situation occurs when there are fewer homes on the market than there are buyers which is known in the real estate industry as a "seller's market."  The basic economic principal of supply and demand makes it unlikely that a buyer's agent will boycott showing a home with a discounted commission when the inventory of available homes is limited.