Heater Kirk-Ballard, PhD, Assistant Professor of Consumer Horticulture School of Plant, Environmental, and Soil Sciences, Louisiana First Foundation and Louisiana State University
Just So You Know How Commission Distribution Works
Dated: September 3 2019
Once your home is listed in the Multiple Listing Service (MLS), the listing broker discloses the terms of the commissions to other competing brokers so they will bring their buyers to the listing. When the buyer's broker presents a contract to the seller, it will include a provision to collect their share of the sales commission, as offered by the listing agent in the MLS.
Nearly nine out of 10 real estate agents work on commission and are paid only when the transaction closes.Except for the legal profession, real estate agents are the only fiduciaries and agents who work this way.Commissions are paid according to the terms of twocontracts - the listing agreement, and the salescontract.To simplify how commissions are routed, the real estateindustry customarily allows all sales commissions to bepaid out of the seller's proceeds, according to the termsof the listing agreement.BrokersAccording to licensing law, only licensed brokers canserve as fiduciaries. They have “agents” or licensedsalespeople who work for them, but they have the legalresponsibilities of operating the brokerage. Thesalesperson license allows salespeople to serve asagents of the broker. They can negotiate contracts, butthe seller is actually negotiating with the broker, byproxy. It’s the broker’s company name and signature onthe listing contract.DistributionOnce the home is listed in the Multiple Listing Service(MLS), the listing broker discloses the terms of thecommissions to other competing brokers, so they willbring their buyers to the listing. When the buyer’sbroker presents a contract to the seller, it will include aprovision to collect their share of the sales commission,as offered by the listing agent in the MLS.That means a commission can be split as many as four ways:• Listing broker or agent• Listing salesperson• Buyer’s broker or agent• Buyer’s salespersonAt closing, the listing agent is paid by the escrow agent out of the seller’s proceeds, or a day or two laterwhen the buyer’s loan is funded by the lender. The listing agent, in turn, pays the buyer’s agent his or hershare of the sales commission.All commissions are negotiable, but sellers should keep in mind that commissions are incentives.
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