Understanding Real Estate Commissions

This is an old made-up story but one that makes a lot of sense. The heat turned off one day and a couple had to call in a specialist to look at their furnace. The house was getting colder and the children were starting to complain. When the furnace professional arrived he was warmly welcomed into the home and made his way downstairs. Upon arriving at the furnace he gave it a quick inspection and then gave it a good bang in a certain spot. The furnace instantly turned on, the couple was elated and they all headed upstairs to give the children the good news.

The furnace guy took out his invoice and handed the couple a bill for $200. The husband was shocked at the price and asked why he had to pay $200 for 5 minutes of work. He also added that he could have done that himself. The furnace specialist looked up casually and said that he had the knowledge of where to hit the furnace to make it run again.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Why Does the Real Estate Commission Cost What It Does?

In the world of real estate, an agent may be able to find you the perfect home on the first shot. At this point, you may be wondering why you have to pay all of the real estate commission when everything happened so quickly. This type of scenario could be compared to the furnace story above. The agent was trained and prepared to help you so that finding the right home was simple and easy.

In most cases, however, it does take some time to find the right home and usually doesn't occur when you visit the first home for sale. Your agent will have to put in some effort and time to help you find your dream place and there is also a lot of work going on behind the scenes. Once you have found a property and want to call it your own, your real estate agent will know how to fill out the paperwork and work the negotiations.

Who Pays the Real Estate Agent Commission?

Because buyers nor sellers typically pay a real estate professional directly, one of the most common questions concerning the process concerns who actually pays for the services of these agents. Both selling agents and those representing buyers are compensated after the sale takes place. Typically, these commissions range between 3-7% and are split between these parties based upon the sale's proceeds.

Since their take is calculated in the sales price, one might think the seller is paying for the commission and the buyers don't pay anything. However, this couldn't be further from the actual truth. Because such fees are worked into the total buying price of a home, it is the buyer who will be making those payments along with interest each month. So, in reality, the buyer ultimately ends up paying for all of the commission fees for both agents.

The Value of the Real Estate Agent When Buying a Home

When your toilet is overflowing you call a plumber. When you have a toothache you go and see the dentist. When your furnace conks out you call in a specialist. When you plan to sell your home, you need to call a real estate agent. It's easy to bang on a furnace but you need to know exactly where to do it to get the furnace started up again.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.