Selling real estate is quite expensive. The bulk of home selling fees go to real estate brokerages. Here is a brief explanation of how real estate commissions work.
-Commissions: who pays who, and what percentage is designated to whom?
When a home is listed by a real estate agent, the seller and the listing agent agree on a commission. They also agree that a portion of this commission will be paid to a buyer’s agent who provides a buyer. So, as long as the house is listed by real estate agents, buyers don't have to pay any commissions. If a buyer who has signed representation with a buyers agent actually buys a for sale by owner home, and the FSBO seller isn't willing to pay a buyers agent commission, then the buyer may be required to pay a commission.
The total commission sellers pay real estate agents is usually between 4-7%. 2.5%-3% of this commission is generally offered to the buyer’s agent. In the current market, with so many more homes for sale than buyers, selling commissions are up. It's not uncommon to see 4-5% commissions offered to buyer’s agents to entice them to show certain properties.
All commissions are actually paid to the real estate brokerage, who then pays the real estate agents. After taking out fees, advertising expenses, and errors and omission insurance, real estate agents typically get 50-85% of the total commission the brokerage received. These commissions vary based on the brokerage the real estate agent is with and their experience.
-What are the responsibilities of the agents involved in the transaction?
The listing agent is responsible to represent the seller. They are paid to market their home, and negotiate on the sellers behalf.
The buyer’s agent represents the buyer and has a fiduciary duty to look after their best interest during the real estate transaction. While the most time consuming duty is usually showing houses, the most valuable duties are assisting with writing offers and negotiating contracts.
-What is Limited Agency?
Limited agency is when a real estate agent represents both the buyer and the seller. In these instances, the agent can't really represent either side, because they can't reveal anything that would damage the other parties negotiating ability. With limited agency agents can't provide a lot of advice to the buyers and sellers, and must let them make decisions on their own. Many of the problems and legal issues that happen in real estate transactions are a result of limited agency. In some states "limited" or "dual" agency is illegal.
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