How Do Real Estate Commissions Work?

Here at RealDirect, our goal is to work with our clients in the way that suits them the best. Sometimes that means they use our free services (RealPrice). Other times we work on a monthly fee basis (as in our Owner Managed program). And still other times, we earn a commission Agent Managed and Buyer Service). However, not all commission based real estate brokers are the same, and to best understand our commission structure, you need to understand how the typical brokerage is compensated.

A traditional real estate brokerage earns commissions from sellers as well as buyers. A seller will pay a commission (typically 6%) to the listing broker, who then pays 50% of it to the buyer’s broker (if there is one). If a listing broker sells to a direct buyer (no buyer’s broker involved), the listing broker keeps the full 6%. Some buyers mistakenly think that if they go direct to a seller with a traditional listing broker, they can negotiate a better deal because the seller does not have to pay a buyer’s broker. This is not true because the listing broker is entitled to the full commission. And this can create a conflict of interest where a broker will prefer a buyer who comes direct but may have a lower offer or worse financials than someone who comes with a buyer’s broker. So while a seller may prefer one buyer, an unscrupulous broker may delay the better offer (or never present it) so they can get the direct buyer and make a double commission.

RealDirect has a strict policy against this, which is known in the industry as “dual agency” (where the same broker represents both the buyer and the seller). We simply will not represent both parties of a transaction. When we work with a seller on a commission basis, we take just 2% – whether the buyer is represented by another broker or not. This way the seller can decide which offer they want to take without any bias from the broker on the deal, since the broker’s compensation is the same either way.

But while RealDirect only takes a 2% commission for our Agent Managed listing, we encourage our sellers to pay a full 2.5%-3% commission to buyer’s brokers. Why? Because that is the market rate for buyer’s brokers these days, and we would never want our clients to be at a disadvantage in the marketplace. But if a buyer comes direct (which happens about 50% of the time), it is the seller that gets the benefit of the direct deal, and not us.

On the buy side, most buyers brokers get what they get – i.e. if the listing broker offers 3%, then that’s what they take. If they offer 2.5%, they take that. And if there are 2 similar properties and one has a 3% commission, and the other a 2.5% commission, there again is the potential for the broker and the buyer’s interests to not be aligned. So again, RealDirect has a different approach. We take just 2% – and we give the difference of what we receive and the 2% back to our buyers in the form of a rebate at closing. Our buyers can afford to pay a little more as a result, which should make everyone happy. And our agents can never be accused of acting in anything but the best interest of our clients.

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