What are the customary real estate commission rates?
In California there is no standard or mandated real estate commission rate. All real estate commission rates are negotiated. The current standard or customary real estate commission to sell a property is between 5 to 6 percent. All real estate commissions are negotiable, but not every realtor will negotiate.
Some properties can be handled for a higher rate based on the situation and price of the subject property. And other properties can be listed for a lower commission. Coffee Real Estate has listed homes for sale with a 1% lower commission rate. Also, with a complicated real estate transaction or property marketing challenges the commission rate for the listing side was 3.5%.
So the real answer to “What are the customary real estate commission rates?” is it depends on the real estate to be sold. Also, as a general rule, the lower the price of the property, the higher the commission rate will be. For example, a lot of land asking price of only $50,000 will need a higher commission rate or an agreement of a fixed dollar amount, say $5,000 to sell the land.
Who establishes the real estate commission rates established?
The real estate commission rates is negotiated and put into writing in California with a contract called the residential listing agreement. The residential listing agreement is used with home owner listings. If the property is commercial or residential income property we use the commercial and residential income listing agreement. In section 4 of the contract is the compensation to broker part of the contract.
In this section the total commission rate is set and what percentage or amount the listing broker is going to share with the selling agent. Here is a breakdown of how it works. The sellers get started by contacting a broker or agent representative and agree to a 5% commission rate of the home sale price. They share the commission 50/50 between the listing agent and buyer’s agent each receiving 2.5%. Or, if a listing agent sells the property by acting as agent for both the seller and the buyer, that agent would split the full commission with their sponsoring broker.
What does commission mean in real estate?
A commission for real estate is paid by the real estate brokers and salesmen who act in facilitating and negotiating transactions for a particular property. Real estate agents’ income generally comes from commissions. The realtor is not compensated until a property sells and they are part of the listing or sale when it sells.
Who pays the real estate commission?
As the real estate market is now, the seller of the property pays the real estate commission. The first point to understand about real estate commission is the listing real estate agent (the agent who is going to put property for sale for the home owner or seller) receives only part of the commission. Depending on the property situation, it is generally 50/50 split between the listing agent and selling agent (I know calling the agent who sells the property the selling agent makes it confusing). That means half to the agent listing the property and half to the agent that finds the buyer for the property. But the split can be 60/40 or 40/60 or any other division of the whole. That means the agent representing the buyer will get the other part of the commission.
Who pays the home sale commission really?
There are two schools of thought on this issue. The first one says the buyer brings the money to the table, therefore they paid the commission. Also, it is argued that the commission is typically part of the sale’s price; consequently it is paid by the buyer. In other words, the home seller and the realtor work out the bottom line the seller will accept to sell their home and the real estate commission is built into the price.
The other side says the seller pays the commission. The commission comes out of the total payment for the property. It is also clear that the commission generally comes on the seller’s side of the Uniform Settlement Statement at escrow when the transaction is closed. The real estate broker creates the contract that sets the commission for the sale of the property.
The buyer looks at the total cost of purchasing the property. Where the seller looks at the net from selling the property and the commission is a big part of the cost of selling. So both the buyer of the home and the seller of the house think they paid the real estate commission.
Why pay a real estate agent a commission to sell a property?
First reason is to find a buyer who is able to pay for the property. Realtors and real estate brokers are in the best position to find home buyers. That is their job, career and business.
Depending on the quality and marketability of the property being sold, the agent might spend roughly the half of that amount of the commission on marketing the property and completing other tasks associated with the sale. If you do the numbers, than half the listing commission goes to the listing agent. And of that half commission, half is reasonably spent by the agent to find buyers for the property. This leaves a quarter of the commission to cover the agent’s normal business, taxes, fees, overhead and living expenses.
What is the real estate commission value to home sellers?
1. The benefit of professional knowledge
The first major value to hiring and paying commissions to a professional licensed real estate broker and or realtor is their knowledge and experience. They know the legal aspects of selling a property. They understand the contracts to make home sales. They know the home selling process. The local Sacramento real estate market data has much variety that could complicate a house transaction.
2. The benefit of quality real estate marketing
The home marketing service and sales tasks include email marketing, direct mail marketing (including postage), web marketing, printing flyers, home books, comment cards and marketing packages, purchasing and installing signs & directional signs, listing the property on the MLS, installing lockboxes and enlisting entry card services, conducting and marketing open houses, and creating virtual video tours and much more specific types of marketing are the big part of the value of hiring a professional real estate company.
3. The headache of paperwork removed
Another reason to pay a real estate agent a commission is to take care of the paper work. The legal aspect of selling a property is vast. Preparing the contracts and legal disclosures is a big job and costs. And the consequences of not doing it right can be enormous and time consuming. The house can be sold for cash and to fast cash companies and the commission is still earned.
4. The home sales process
Another major problem a real estate agent solves is being the go between for the buyer and seller. There can be personality conflicts, communication difficulty, property issues, complicated legal issues, financial issues, time delay issues and the list goes on and on that a quality real estate agent handles. Again, this is worth a good deal of commission. The home selling process has many steps.
5. Professions looking after contingencies and contract deadlines
Another huge reason for paying a real estate agent a commission is to see the deal through to the end. A real estate agent is worth his or her weight in gold when they look ahead to see when the contingencies are due and solve any problems before they hit the clients. The standard real estate contract has many conditions, disclosures and contingencies that must be managed. It is worth hiring a full time person to see the deal to the end.
6. Adding up all the value and seeing the benefits from a commission fee.
Real estate agents take on all these tasks and more for the chance of getting paid a commission. Generally, a real estate agent only receives payment if the property sells. Escrow will make the commission payment at the close. It is an all or nothing proposition. The property owner is getting a great deal on professional work done, but only pays for it when the property sells.
Who takes the risk of earning a commission to make a home sale?
The real estate agent or realtor is taking a big risk to sell your home. All the marketing costs and other fees are paid upfront by the broker or agent. The real estate agent only gets paid if the property sells. If the property does not sell, all the marketing costs that were paid by the agent is not passed on to the property owner. This is the key to the commission issue to the agent and broker.
Who are the people involved in a real estate commission?
The starting point is with the seller of the property. The home owner could be a trust, transfer in the probate process, or the people named in the grant deed. In California the brokerage is the company that can take on a listing contract. So the real estate broker makes the contract to sell your home which creates a client relationship with the broker. The amount or rate of the real estate commission is not fixed by law. They are set by each broker individually and may be negotiable between the seller and broker. Real estate commissions include all compensation and fees to the broker.
May times the seller never meets or knows who the broker is. They deal only with a real estate agent who they know as a local expert or as a personal friend or family member. Both real estate agent and broker can have the title of Realtor. They must be a member of the National Association of Realtors (NAR) and subscribe to its code of ethics. Also, if they are a local Sacramento real estate professional, they must join the California Association of Realtors (CAR). The sale commission could be split between the listing agent and selling agent or if they are the same person, which is ok in California, they could earn the whole commission.
How other agents learn about the home for sale and the commission.
Brokers are authorized in the contract to cooperate with and compensate brokers participating through the Multiple Listing Service (“MLS”). This system will let all subscribing agents and brokers know about the house’s features, data, information and commission.
Broker’s and seller’s duties:
1. The broker agrees to exercise reasonable effort and due diligence to achieve the purposes of the contract to sell the home.
2. Unless the seller gives the broker written instructions to the contrary, the broker is authorized to order reports and disclosures as necessary.
3. The listing broker will advertise and market the property by any method and in any medium selected by broker, including MLS and the internet, and, to the extent permitted by these media, control the dissemination of the information submitted to any medium.
4. In California the listing agent must disclose to the seller the receipt of any offers on the property and the offering price of such offers.
5. The seller agrees to consider offers presented by broker, and to act in good faith to accomplish the sale of the property by, among other things, making the Property available for showing at reasonable times.
6. The seller is responsible for determining at what price to list and sell the property.
7. Many contacts have disclosers like — The seller further agrees to Indemnify, defend and hold Broker harmless from all claims, disputes, litigation, judgments attorney fees and costs arising from any incorrect Information supplied by seller, or from any material facts that Seller knows but fails to disclose.
In Conclusion
The home owner is getting a lot of benefits working with a Sacramento professional real estate agent. The sales commission puts all the risk on the realtor to preform to receive payment for services rendered. The property owner only pays when the property is sold. As a property owner who sold several properties I am happy to pay commission to a real estate professional. They sold the house for the right price in the right way to close the transaction and dealt with all the interpersonal drama and paperwork headaches. I feel personally and professionally that real estate commissions are worth the cost.
How to begin looking for a home can create problems. Each person has their own priority of what is important. For some it is where to buy a home in Sacramento or in Placer County. Others, it is the must haves of the house the wants, needs and must have list. Coffee Real Estate works with home buyers to find the right home for them. Let’s begin the process today.
