How are real estate commissions paid and split

real-estate-commissionsReal estate agent commission questions are part of the conversation when we talk to home buyers and sellers. There is a lot of confusion on this topic and thus the reason for this article. Let’s take a look at who pays real estate commissions when a property in Phoenix is sold and how the money is divided up by the various parties.

Who Pays The Real Estate Commissions?

When you buy or sell a home the real estate commissions or sales/marketing/consulting fees are usually paid by the home seller. This can be a private owner, lender, bank or investor. The amount of the commission is agreed when the property seller hires a real estate agent to market and sell their home. The document that outlines the commission amount is commonly called a listing agreement. See our article about the listing agreement used in Arizona: http://urbanteam.wpengine.com/2012/08/the-listing-agreement-or-er-form-phoenix-az/

How Is The Real Estate Agent’s Commission Split?

In most cases two real estate agents and their brokerages are involved in the sale of a home, condo, loft or land; One represents the property seller and one represents the buyer. The agent who represents the seller will advertise the property in their local MLS; In the Phoenix area it is ARMLS. Included in the advertisement, AKA “listing”, will be the amount of commission being offered to the buyer’s agent. This is normally a percentage of the sales price.

When the transaction is completed, the title and escrow company will disburse the commissions along with loan payoffs, property taxes, HOA fees and other costs associated with the transaction. The commissions will be divided per the listing agreement to the two real estate brokerages who in turn will pay the agents involved in the transactions. The amount paid to the agent will be based on agreements they have with their specific broker. Many agents pay franchise fees, broker fees, E&O insurance premiums and transaction management fees. Thus the amount the agent actually receives is not the actual amount of the commissions paid to his or her brokerage.

When the property is sold the listing agent will reimburse him or her self for costs associated with the sale of the home. This can include items such as:

  • MLS Listing Fees
  • Internet listing fees paid to consumer sites such as Zillow.com, Realtor.com, Trulia.com, AZ Central, Yahoo Real Estate and more.
  • Internet syndication fees from services such as ListHub.com.
  • Fees for installing and taking down front yard signs.
  • Printing costs of flyers and brochures.
  • Virtual tour and photographic services.
  • Home staging services
  • YouTube video creation and development.
  • Other forms of advertising & marketing

FYI: Not all agents employ all these tools. We do this and a number of other things when we market a property for sale.

Conclusion:

This is generally what happens to commissions in the average transactions. However, each transaction is different and other agreements can be reached between parties. We’ve seen buyers pay some or part of their buyer’s agent commissions and one of our friends was compensated with a car. You never know as the world of real estate is seldom boring.

We hope this article has been insightful and helpful in under standing how commissions work in a Phoenix area real estate transaction. If you have questions, toss us an email at Ron@UrbanTeamAZ.com or give us a call at 602-234-5777.

Gene Urban & Ron Urban
The Urban Team at Realty Executives

7600 N 16th Street, Suite 100
Phoenix, AZ 85020
602-2347-5777

connecting people to the perfect place for over 20 years.