What Is Commission?
A commission in the real estate industry denotes the fee charged by an agent or broker for undertaking real estate transactions. Depending on the arrangement, commissions could be the percentage value of the said transaction, a single fixed fee, or combinations of several commission structures. So, if the agreed structure is percentage-based, then a 5% commission on a $50,000 worth of real estate transaction would amount to $2500.
Generally, in real estate transactions, the seller undertakes the payment of commissions of both his agent (listing agent) and the buyer’s agent (if one is involved in the sale). Customarily, the commission is shared between both agents. Hence, from the earlier example, both agents might share, and each will receive $1250. However, an equal sharing formula is not fixed and may vary based on the agents’ respective status and negotiation.
Usually, the commission stands payable to the real estate agent or broker upon the successful execution of the transaction. However, a situation may arise where the agent would be paid the commission without completing the transaction. For instance, where the seller initially agrees to a purchase facilitated by his agent but subsequently backed out, the seller may be liable to pay his agent his commission in that circumstance. In this regard, sellers should give detailed consideration to the contract to be executed with their agents before they initiate the transaction.