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Real Estate Agents
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.
To simplify how commissions are routed, the real estate industry customarily allows all sales commissions to be paid out of the seller's proceeds, according to the terms of the listing agreement.
According to licensing law, only licensed brokers can serve as fiduciaries. They have “agents” or licensed salespeople who work for them, but they have the legal responsibilities of operating the brokerage. The salesperson license allows salespeople to serve as agents of the broker. They can negotiate contracts, but the seller is actually negotiating with the broker, by proxy. It’s the broker’s company name and signature on the listing contract.
Once the 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.
That means a commission can be split as many as four ways:
At closing, the listing agent is paid by the escrow agent out of the seller’s proceeds, or a day or two later when the buyer’s loan is funded by the lender. The listing agent, in turn, pays the buyer’s agent his or her share of the sales commission. All commissions are negotiable, but sellers should keep in mind that commissions are incentives.