What exactly is a real estate commission?

Forum Value Real Estate & Mortgages What exactly is a real estate commission?

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    What is real estate commission? How does that work? If I were to buy a home, do I pay the agent the commission? Or is it free?



    Well, there’s no such thing as a free service in the world. You’re gonna have to pay up if you use any kind of real estate agent service. That’s why I never use a real estate agent.



    Well, I don’t know if I would necessarily agree with that. Using a real estate agent when buying or selling a home is a smart thing to do. After all, how often do you do this? How much experience can you have?

    Since these real estate agents do this day in and day out, they know everything there is to know. They will have contacts for many things. This is one of the reasons people use agents. Agents can guide someone throughout the whole process. It can be really tricky.

    I’d recommend using a real estate agent, even if you have to pay a commission for their services.



    Okay. What’s the amount of commission that I have to pay? Is there a percentage? If I were to use a realtor to buy or sell a home, do I pay the realtor?



    When you buy a home, you don’t really pay the agent directly. They get paid through a commission. This commission is a percentage of the final price. In fact, the agents of the buyer and seller all take a commission from the final sale price. The agents will share the percentage.



    Commissions for real estate agents can vary. It is anywhere in the region of 3 percent to 7 percent. I think this can also vary.

    As an example, for the sake of simplicity, let’s say that a house sells for $500,000. The commission would therefore be around $15,000 if it is at 3 percent.

    If it was 7 percent, then the commission would be $35,000. Whatever the percentage (and amount), the agents on either side will split this. If it was 3 percent, then the agents would split the $15,000. It does not mean each agent gets 3 percent, or $15,000! Basically, each agent will get $7,500.

    The problem for agents is that sometimes, they do not get their commissions as quickly as they like. What they can do is to use a commission advance company like Premier Commission. This way, the agent can get paid their commission quickly. After all, they need to survive. Imagine not being paid for 2 months! How would you feel? So that’s how all this kind of works.



    While I wouldn’t say that the agent is ‘free’ when you are buying a house, you don’t actually dig into your pocket to fork out the money to them though. All the fees are basically built into the whole transaction. The one thing is, the buyer is the one who really pays all of the commission fees.

    This commission is for both the buyer’s agent as well as the seller’s. I suppose there is a misconception about all this, since the fee doesn’t come out separately.

    You won’t have to write an extra cheque to pay the agent. It is all somehow included in the transaction of the sale. If anything, it is free when you are a seller. Perhaps that’s why some people think it is ‘free’ to use the agent if you are a buyer. You still do pay, I suppose. Either way, all agents will make a commission from the sale of a house.



    Okay, using the word ‘free’ has caused so much commotion. I just used the wrong word. Obviously I didn’t think there were going to be free services.

    Anyway, thanks to everyone for your insightful answers! I learned a lot today!

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