Commissions
Commissions are paid by the seller. The total commission that the seller pays typically gets split between several people.
Before we can get into more specifics on how commissions get spilt we need to understand the two types of California real estate licenses: 1) Broker and 2) Salesperson. A broker can be in charge of their own business or a broker can choose to work for another broker. A salesperson cannot do any business on their own but must work for a broker. In fact the only person who can pay a salesperson anything is the broker that they work for. Because of the salesperson-broker relationship the salesperson’s (and sometimes a broker associate's) negotiating ability may be severely limited.
This is what might take place in a typical home sale:
- The seller signs a listing agreement with a salesperson. For illustration purposes assume that they agree to a 6% total commission.
- The salesperson enters information about the home into the Multiple Listing Service (MLS). A key piece of information is how much commission will be paid to the agent who finds a buyer for the home. For illustration purposes assume that is 3%.
- A salesperson other than the one who took the listing finds a buyer, the home sells, and escrow closes.
Now how might the commission get distributed?
- Escrow pays the total amount of the commission (6% in this case) to the listing broker
- The listing broker pays the selling broker part of the total commission. (With a 3% MLS commission in this case it is half of the total commission. But it does not have to be evenly split between the listing broker and the selling broker).
- The listing broker splits the remaining commission with the salesperson who took the listing from the seller.
- The selling broker splits their commission with the salesperson who found the buyer.
If you want to negotiate commissions make sure the person you are talking to really has the authority to negotiate them.
CAUTION
When you push some listing agents to lower the total commission they do it by reducing the selling office commission on the MLS. If your house shows 2 percent or 2.5 percent and an otherwise equivalent house shows 3 percent which one do you think a selling agent working with a buyer is going to push? Don’t put yourself at a disadvantage and then wonder why you are not getting any offers on your house. Make sure you know what the total commission will be and what the selling office commission shown on the MLS will be.
Please contact us with any questions you may have.