DESPITE THE COST involved, the vast majority of homeowners continue to use a broker when they sell. Real estate commissions were once a standard 6% of the proceeds from a home’s sale. Today, 5% is increasingly common, with the commission set at perhaps 4% if the seller’s agent also manages to find the buyer, without involving another agent. But whether it is 6%, 5% or 4%, it’s a lot of money, though maybe not as lucrative to the broker as you imagine.
Suppose you’re selling your home and you have negotiated a 5% commission with your real estate agent. If the house sells for $400,000, the commission will nick $20,000 out of your proceeds. Your agent will have a big payday, but he or she won’t collect the full $20,000. The commission will have to be split with the buyer’s agent. The real estate brokerage firms that employ the two brokers will also get a cut. Result: Your agent, especially if he or she isn’t a high producer, might personally pocket just $5,000, or 1.25% of the gross proceeds.
Because the percentage is so small, your agent’s greatest incentive isn’t to garner the highest possible price, but rather to get the deal done quickly. Suppose you hold out for an extra $20,000 and it takes an extra six weeks to sell your home. You’ll pocket perhaps $19,000 more, which you would no doubt be happy about. But your agent may garner just a few hundred additional dollars, despite weeks of extra work.
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