Realtor Representation & Commissions

We will share with you important information that will help you to understand how things work in relation to representation and commissions.

Representation & Commissions

Three separate entities involved are realtors, real estate agencies and the Multiple Listing Service (MLS).

1. Agents may cross over to other agencies in transacting business, without any extra expense to the Buyer.

2. For our discussion here, we focus on two kinds of real estate agents: The Listing Agent (Sellers Agent) and the Buyers Agent (on the MLS, referred to as the Selling Agent).

3. The Sellers Agent or Listing Agent is the realtor that lists the persons home- the realtor that has the sign in the yard.

4. The Buyers Agent is the agent that "brings" or shows the buyer that listing. Also, it doesn't matter which company is involved.  Example:  An ERA agent can show a RE/MAX listing to one of his/her buyers or a Century 21 agent can show an ERA listing and so forth.

5. The seller of a property desires his Listing Agent to not only use his/her own efforts, but the efforts of hundreds of other agents from all the real estate companies- to expose the property to as many agents, agencies and buyers as possible.

6. This exposure or meeting ground takes place on the MLS.

7. What the MLS does for the Listing Agent is to expose the listing to all the buyers agents from all the real estate companies.  The Listing Agent offers an incentive to the Buyers Agent by splitting his/her commission as a  shown written arrangement on the MLS (see MLS sheet below, center arrow). The standard going split is half and half or usually 3% (Buyers Agent) and 3% (Listing Agent). The Buyers Agent now has incentive to "bring" the buyer.

8. The asking price that the Seller sets includes all commissions, to be taken out of the asking price at closing from the Sellers pocket, and at no time from the Buyers pocket or side of the transaction. 
   Bottom-Line Statement:  That means it does not matter which agent from which company you use to show the house or to represent you on the contract as far as money is concerned (#9 goes into more detail).

9. To give the Buyers Agent an incentive to "bring" his/her buyer to the listing [to show it], the Listing Agent (through the MLS) has posted a written arrangement on the MLS listing sheet for a commission split to take place. The standard arrangement on homes is:
   

The Listing realtor lists for 6% and agrees to split 3% of it with the Buyers agent if that agent "brings" the buyer, while retaining 3% for his/her work on the Listing portion (See Chart Below).

MLS Data Profile (see below)

Center arrow on chart:  Represents the Buying Office Commission (this arrangement is there on "day-one" of the listing). 
Left arrow on chart:  This is the agent and agency listing the home when it was first put on the MLS, the standard commission rate of which is 6%.
Right arrow on chart:  Since this listing has been sold, the listing has been updated to reflect who the Buyers Agent and company was on this transaction. You'll notice here that Brian Hickman with Realty Executives was the Selling or Buyers Agent and that the Listing Agent or Sellers agent was Brian Habel with RE/MAX First.  

This arrangement below represents a split commission between two agents, but shows only the Selling Agents (Buyers Agents)  commission. Because the standard arrangement between the Listing Agent and the Seller is 6%, we can assume that the Listing Agent will be getting 3% on this transaction as well.

By the way, all companies can participate and "bring" the Buyer to obtain the center arrows 3% commission.

To use a different scenario from the above chart: If the Buyer had called the Listing Agent (Brian Habel) and used him instead of the Selling Agent (Brian Hickman), then the Listing Agent would have received the credit for "bringing" the Buyer and therefore, the commission that was held out for that agent. So, instead of the Listing Agent (Brian Habel) making the standard 3% (on the Listing side) he now receives an additional 3% for a total of 6% on the deal. 

Bottom-Line Statement:  The Buyer will always pay the same, whether or not he/she had called (and used) the realtor off the sign in the yard or if they had used his/her own realtor.  There is no difference in bottom-line cost to the Buyer.

Which agent should the buyer use? - List of Disadvantages to using the Listing Agent.