Filled with legal jargon, fine print and detailed nuances, the process of purchasing a house and/or property is a complicated one. The truth is, there are so many simultaneous moving parts, that it can be difficult to know how not only the whole thing works but even the main pieces. Below we’ll be breaking down how real estate commissions work so you can get a better idea of what you’re paying your real estate agent next time you decide to buy or sell.

What is Real Estate Commission?

Real estate agents are the lovely ladies and gentlemen that list and show prospective buyers around houses, apartments and condos that are for sale. This puts them in the “sales” category of real estate firms, meaning the more they sell, the more money they can potentially make. Thanks to commissions (a percentage of the houses they sell, they earn), real estate agents get additional incentive to close more deals.

What Percentage of Commission Do Agents Get?

The actual percentages themselves can vary by the real estate firm and the individual agents that represent them. However, it typically ranges from around 5-6% – with those of the high-end and luxury variety closing in on double figures.

Which Parties Do The Commission-Generated Funds Come From?

More times than not, the seller ends up paying all of the commission at the close of sale. This is typically included in the “closing costs” that come up during that final meeting when you finally get the keys to your new home! Though typically, the fees don’t go right from seller to real estate agent. In most cases, it goes to the real estate broker – the one that funds your mortgage, as they often work directly with real estate agents. Sellers can easily calculate the asking price and factor in the commission rate to know what to offer up when the time comes. However, depending on the specific agreement, some of these terms can vary a bit.

Are These Rules Universal?

Many of these practices are considered the norm and are therefore generally accepted as default. However, there are no legal mandates that make this imperative, so in the event of unlikely circumstances, some adjustments can be made to the contract prior to signing. Your best bet is to work with an established real estate agent that will consider your needs first.

Are The Commissions Worth It?

99 times out of 100, absolutely and without a doubt the commission fees are worth working with a real estate agent. First off, your real estate agent most likely knows (and can recommend) other key figures involved with the process (the broker, a real estate attorney, home inspector, a handyman, etc.) The peace of mind knowing you have a network of trusted professionals will save you some hours of sleep. Plus, and this is vital – your real estate agent knows the housing market a lot more than you do and I don’t care how much you researched it. Because your real estate agent makes a commission on the sale, you’ll get top dollar for your house, which should more than cover the commission fees. Remember – you’re on the same side!