Real Estate Commissions Explained

Real Estate Commissions Explained

By Stephen McCarthy

You must be licensed in order to earn a commission to sell a property on behalf of another party.

I am licensed with the Commonwealth of Massachusetts Division of Occupational Licensure Board of Real Estate. My license number is 9051109.

An individual can sell their own property without a license. But if you hire someone to sell your property they must be licensed in order to be earn a commission.

And according to MA license law a real estate salesperson must work with a licensed broker. For example my license is affiliated with William Raveis Real Estate.

Because I am also a Broker I could open my own office and collect commissions directly. But for now let’s consider a real estate agent/salesperson affiliated with a licensed broker.

If you hire me to list and sell your property I am going to ask you for a commission due at closing. However when the property closes the commission payment will actually be paid to my broker, William Raveis Real Estate.

Real estate agents always talk about “sides”. They mean the list side and the buy side of the commission. The Listing Broker will split the commission - list side and buy side. Typically this is split evenly but not every time.

If am the List Agent I would get paid my portion of the List Side.

And if there is a Buyer Agent they would be paid the Buy Side.

And if there is not a Buyer Agent the List Agent can claim both sides of the commission.

So let’s say a home is sold and the total commission due from the Seller is $100,000. The sale closes and the Listing Brokerage is paid.

The Listing Brokerage would pay the List Agent $50,000 less their agreed split (compensation) arrangement. Let’s say the agent’s split is 60% that means the List Agent earns $30,000.

The brokerage for the Buyer’s Agent would receive $50,000 and in turn pay the Buyers Agent less their agreed split arrangement. Let’s say they are also on a 60% split. So that Buyers Agent would be paid $30,000.

When a Seller first hires a Real Estate Salesperson or Broker to sell their real estate they will agree on a commission and how much compensation to offer any Buyer’s Agent. In my experience the commission is split 50/50.

When I am hired by the buyer to assist in their home search. In exchange for representing them as their Buyer’s Agent I ask for commission to be paid upon a successful closing. In the current market most sellers will price their home for sale with the understanding they will need to compensate the Buyer’s Agent. So the commission is built into the asking price.

At closing the Listing Brokerage will pay my office, William Raveis Real Estate, the Buyer Side commission. Then my office will pay me my share based on my split agreement.

Any commissions are paid to the Broker of Record who then pays the agent.

Licensed real estate agents are typically working on a 1099 as an Independent Contractor so they are now responsible to pay their State and Federal Income taxes.

Real Estate Commissions Explained

Work With Stephen

I have been a full-time Boston Real Estate Sales Agent since 2001. I focus primarily on the South Boston, MA real estate market. However, I have closed sales throughout Greater Boston. I monitor values and market activity so that I may provide my clients with timely market information and expertise.

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