What Factors Affect a Real Estate Broker's Commission?

K. Kinsella

Real estate brokers negotiate real estate deals between buyers and sellers. Brokers are typically paid with commissions rather than salaries or a flat fee. A number of different factors can affect a real estate broker's commission; these factors include local laws, the sale price of the home and the number of agents and other third parties that have a role in the transaction.

In many cases, there are laws in place that cap broker's commissions, in order to protect consumers.
In many cases, there are laws in place that cap broker's commissions, in order to protect consumers.

There are a number of laws that cap a real estate broker's commission that are designed to protect consumers from excessive fees. In other instances, a brokers association may set standards for commissions and while brokers are free to demand high fees, the standard fees are usually well publicized which may make it difficult for a broker who charges large fees to solicit prospective clients. Generally, limits on fees are based upon commissions as a percentage of the sale price rather than actual monetary amounts.

Brokers are typically paid on commission.
Brokers are typically paid on commission.

In many nations, a real estate broker's commission amounts to a fixed percentage of the home sale proceeds. Higher sale prices result in higher broker fees. Critics argue that this fee structure encourages brokers to inflate real estate prices and to protect the interests of the seller rather than the buyer. Advocates of the commission based fee structure argue that brokers in many nations are bound by ethics rules that prevent them from putting their own financial interests ahead of their clients. Furthermore, many people make the case that it takes much longer to find a buyer for an over-priced house than a reasonably priced property so broker's who try to inflate home prices end up having to work much harder to sell the homes.

During many real estate transactions, both the buyer and the seller employ a broker. In nations where laws limit the real estate broker's commission, the fees are usually equally split between the two brokers. Therefore, brokers make more money if either the buyer or seller negotiates the sale of the home without the assistance of a broker.

In the United States, the United Kingdom and many other nations, sellers are usually expected to pay the real estate broker's commission. Some sellers are unwilling to pay the standard fees and include stipulations in sales contracts that require the broker to accept a reduced fee. In France, a real estate contract may require either the buyer or the seller to pay the fee and in some instances, both parties may refuse to cover broker's fees. Therefore, some transactions do not involve brokers if neither party wants to pay a fee; where brokers are involved, the commissions depend in part upon the terms of the sales contract.

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