If you're wondering how Realtor commissions work, then you're not alone. I've been selling real estate for 16 years now and I get this question all the time. Traditionally Realtors have charged 6% of the sales price of the home. This is a hard pill for most homeowners to swallow and for good reason. For example, if you were to sell your house for $400,000, you would pay $24,000 in commissions. THAT'S A LOT OF MONEY!.
There are some agents who actually believe that 6% is standard and all agents are required to charge their clients 6%. They will even tell their clients that their broker requires them to charge 6%. This second part might actually be true, but their is no law or statute that says Realtors must charge 6%. In fact, the truth is, Realtors can charge whatever they want to as long as their broker is okay with it.
It's important to remember that the MLS does require the listing agency to pay a commission to any cooperating brokerage that brings them a buyer. Typically, agencies charging 6% would advertise on the MLS that they will split their commission with a cooperating brokerage; 3% to the listing agent and 3% to the buyer's agent. However, they don't have to do that. The listing agency could keep 4% and only offer 2% to the cooperating brokerage or vice versa. It's also important to point out that if there isn't a cooperating brokerage, in other words, the buyer is unrepresented, you will still be obligated to pay the listing agency the 6%.
This is a little different if you go with a discount or flat fee real estate agency. For example, Utah Home Central charges a flat fee of $2,500 for our services and we give our clients the option of what they will pay the cooperating brokerage. One of the most frequent questions I get from clients is, "Why do we have to pay a commission to the buyer's agent?"
In reality, you're not paying the buyer's agent, Utah Home Central is. Regardless of who lists your home on the MLS, they will be required to offer a cooperating brokerage (i.e. buyer's agent) a commission. So instead of paying 6% as you would with a traditional agency, you are paying the listing agency the flat fee charge, $2,500 in our case, and 3% which the listing agency will offer to the cooperating agency. However, this is still a considerable savings over a traditional 6% agency.
I don't know about other flat fee agencies, but if there is no cooperating agency, Utah Home Central does not require the seller to pay them the 3% or whatever they were offering to the buyer's agent; another considerable savings.
Hopefully this clears things up regarding commissions. However, if you have further questions, please feel free to reach out to us.