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  • Writer's pictureTerrence Byrd

How Real Estate Commissions Work

Real estate commissions have long been a significant part of the home buying and selling process. They are fees paid to real estate agents for the services they provide during the transaction. Typically, this commission is a percentage of the sale price of the home, and it's often split between the buyer's and seller's agents.

Traditionally, the seller of the home pays the commission, which is then divided between the listing agent and the buyer's agent. The standard commission rate has been around 5-6% of the home's sale price, though it can vary. This means that if a home sells for $300,000, a 6% commission would total $18,000, with $9,000 going to each agent. However, these rates are not fixed by law and can sometimes be negotiated.

The way commissions are split is part of the Multiple Listing Service (MLS) rules, which are established by local real estate associations. The MLS is a database that real estate agents use to find homes for buyers and list homes for sellers. It's a cooperative system that allows agents to share information and ensures that both the buyer’s and seller's agents are compensated for their efforts.

A recent ruling by the National Association of Realtors (NAR) has the potential to change how real estate commissions work. Under the new NAR ruling, there will be more transparency in real estate transactions, particularly regarding the commission rates. The ruling requires listing brokers to disclose the commission rate offered to the buyer’s agents and ensures that the buyers are aware of what their agent will earn from the transaction. This ruling aims to empower consumers with more information and potentially encourage more competition and negotiation regarding commission rates.

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