How Do Real Estate Brokers Get Paid
Dated: February 11 2021
While the National Association of Realtors has been around since 1908 it wasn't until the 1970s that they formalized a cooperative brokerage system, known as the Multiple Listing Service (MLS), was fully developed. Through the MLS, the concept of subagency evolved. This means the listing broker was the agent of and represented only the seller. The listing brokerage would hire sales associates who were considered subagents of the seller. The listing MLS brokerage was required to make the listing available to all cooperating brokerages within their MLS. These cooperating brokerages were also deemed subagents of the listing brokerage, who were agents of the seller. If the cooperating brokerage had sales associates, they were subagents of the cooperating brokerage, who were subagents of the listing brokerage, who (you guessed it) was the agent of the seller. In short, every agent in the transaction was working for the seller. During this period, an agency relationship with a buyer was not possible, since the agency relationship was always with the seller. The only duty a licensee owed to a buyer was to not lie when asked questions about a property. The concept of "buyer beware" (Caveat Emptor) was truly the reality of how the brokerage business operated and buyers were always unrepresented.
In fact, in 1983, a Federal Trade Commission study revealed that more than 72 percent of home buyers in the United States mistakenly believed that the agent who was showing them homes was representing their interests. As a result, laws requiring agents to disclose whom they represent have been passed across the country. As consumers generally became aware that most agents worked for the seller, many began demanding their own representation.
So, what about that "standard 6% commission" we keep hearing about? 6% has been the customary rate for as long as anyone can remember. This is because the National Association of Realtors (NAR) had a standard commission rate for their members. To be a member of the MLS a broker had to (and still must) be a member of NAR. Therefore, most brokers would have been required to participate in the "standard rate". Because of this in 1950, a Supreme Court decision found brokers to be price-fixing in violation of antitrust laws. However, this ruling did not end price-fixing. It wasn't until the NAR officially adopted a "hands off" policy regarding commission rates that the issue was truly addressed.
Brokers can't, and don't, get together and agree to only charge one rate (price fixing) and I can tell you that some brokers are willing to negotiate their commission and many do but that is something I won't do except in some special circumstances. This is not some side hustle for me (nor do I believe it should be for any broker). I spend many hours every month just in classes to stay abreast on the most up-to-date information in our industry. I know that my services are worth my rate and when we meet I believe you will too.
So what really happens to the commission that a seller is charged to list and sell their home? The Listing Broker shares half of the commission with the broker who brings the buyer. Each brokerage takes their cut and writes the broker a check for the remainder. The broker then pays their expenses including marketing materials, photos, taxes, and other business expenses and then they get what is left over.
I hope this has been informative for you. If you have further questions or would like to get together please don't hesitate to email/text or call me.
Regina McKinney is an "outside-the-box" thinker with her finger on the newest, innovative ways of marketing your home. Her deep understanding of the role technology plays in today's real estate market....
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