Real Estate Commissions: 4 Key Insights

Real estate agent hanging sold sign"Most people didn't think about how real estate agents get paid -- I never did," says homeowner Rick Razzano of Wayne, Ill. "When we bought our house, I don't know if I understood that our agent's commission came out of the amount the sellers were paying their agent."

However, now that Razzano and his wife, Nancy, are selling their five-bedroom, three-bath home, they're much savvier about real estate commissions. They asked their agent pointed questions about what she'd charge and carefully considered the amount they'd be willing to pay.

If you're about to list your home, you should know the basics of your real estate agent's commission. Here are key things to understand:

1. Commissions are negotiable. The Razzanos agreed to a 5 percent commission as the amount that they would pay their listing agent. Real estate commissions are negotiable, and they typically range from 3 percent to 7 percent of the sales price of the home.

2. The listing agent doesn't get to pocket the whole commission. Usually, the amount you pay gets split four ways. It's shared among your listing agent and her broker, the cooperating agent (that's the agent who brings the buyer to the table, who's also called a selling agent or a buyer's agent), and the co-op agent's broker. Let's use a 6 percent commission on a $250,000 home as an example. In that case, you'd pay your listing agent $15,000 at the closing. Assuming the parties have all agreed to split the commission evenly -- which happens, but not in every sale -- each would take home $3,750.

3. The commission structure affects the salability of your property. When you're getting ready to list your home, you should interview at least three real estate agents and ask each the commission that that they'll charge. But don't take that amount at face value. Ask questions to find out why agents believe that they're worth a particular commission and the services they offer that agents charging lower commissions don't provide.

Also ask how much of the commission will be shared with the co-operating agent. For example, you may agree to pay a 6 percent commission to your listing agent. However, your agent may intend to offer co-op agents only one-third of the amount you pay. That could harm your ability to sell your home quickly, because cooperating agents will be less motivated to show a home on which they'll get paid less than if they sold another home with a higher co-op fee.

The same works in reverse. Perhaps your agent is planning to grab the attention of co-op agents by offering them more than half of the 6 percent she'll receive. Whatever your agent's plan, you should be fully informed because it could affect your ability to sell your home.

4. You don't have to pay a commission at all. In addition to traditional real estate companies, which operate on the commission-based model outlined above, there are also an increasing number of non-traditional brokerages. You can choose a company that charges a flat fee, for example. Help-U-Sell charges a set fee that varies throughout the country based on local marketing costs. Other non-traditional brokers, like Assist2Sell, offer a menu of services at different price points.

The drawback is that you may not get all the services that you'd receive if you went with a traditional brokerage, and some real estate agents refuse to sell homes listed with a non-traditional brokerage. Those negatives, however, may be offset by the savings you receive. Only you can make that evaluation.

For more on working with real estate agents see these AOL Real Estate guides:

More on AOL Real Estate:
Find out how to calculate mortgage payments.
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Get property tax help from our experts.

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