Let’s talk more about the commission structure as things stand. Every transaction has its requirements of what it takes to get a home from the "for sale" stage to the "sold" stage. It differs from one transaction to another, so costs are going to differ as well. There are many things that help provide smooth transactions, on both sides.
Currently, the commission is whatever the seller and listing agent determine it will be, together. The listing agent will share with the seller what their commission is for listing the property based on the listing agent’s value and services they provide to sell the house. It can be a specific dollar amount, or a percentage of the sale price. The listing agent and seller will also discuss the benefits of offering a buyer agent commission (dollar amount or percentage amount) which helps to incentivize buyers to walk through the property. Then there is a discussion, maybe some negotiation, and a final agreement.
Historically, real estate commissions were split between the listing brokerage (55%) and the buyer brokerage (45%). If we use a 6% total commission scenario, that amounts to a 3.3% commission to the listing brokerage, and 2.7% commission to the buyer brokerage. This is where the very common 2.7% buyer brokerage payout comes from. It's never been "required", more like, commonplace.
The brokerages then divide that commission with their agent based on the splits the brokerages and agents have agreed upon within their own contracts. But out of the cut the agents get, the agents have to pay for their expenses to list the property (or show buyers homes). Continuing with the above scenario, the listing agent's cut could be anywhere between 50-80% of the listing brokerage commission, resulting in the listing agent seeing a final commission of 1.65% - 2.64% of sales price. If the listing agent got their sellers home sold for $350,000, they would receive $5,775 - $9,240. This is a lot of money. But remember, now the listing agent needs to take away the costs to market the home, the pictures, videos, Facebook boosting, staging, cleaning, monitoring showings and feedback, communicating with the seller, time invested in calling other brokers to see if they have buyers, negotiating inspection items, personal property, appraisal issues, walkthrough issues, HOA issues, etc. That all amounts to a lot of money, too.
What about the buyer agent? On the buyer side, the buyer agent needs to account for all the time invested in showing the buyer 30-50 homes, their gas expenses and mileage on their vehicle, hours putting together offers (usually more than 2 before one gets accepted), hours researching comparable properties to advise their buyers on accurate pricing guidance, working with the buyer's lender to keep the transaction going smoothly, negotiating inspection items, personal property, appraisal issues, walkthrough issues, HOA issues, checking on surveys, etc.
Finally, both the listing agent and buyer agent then take 20-30% away for taxes.
After all that, there is nothing accounted for in regard to the value they provide by handholding, calming emotions, lengthy explanations of why this or why that the number of trips taken to go turn lights on and off at a house, or the time it takes to keep the 10 people involved in the process (2 agents, 2 sellers, 2 buyers, 2 title companies, a lender, and possible parents) apprised of changes, updates or just general communication. Or the vetted resource list (developed over many years of experience) for inspectors who are not alarmists, lenders who can get your buyer to closing, painters and handymen who take your call and don’t over charge clients.
There are stories out there about how agents don't or didn't provide good service for the commission their client paid them. Unfortunately, we only hear the bad stories. In reality, the majority of agents ARE genuine, hardworking, and caring individuals that pride themselves on providing the best service for their clients to earn their commission.
Next we will cover what will change mid summer as far as this commission structure is concerned.