How does commission split work?

So if a commission split is listed at 2.5%, what does it mean for both the buyer and seller? If buyer was not using representation from a broker, would the entire 2.5% be borne by the seller?
In Buying Property - Asked by David T. - Jun 30, 2009
Report Abuse
Answer this Question

Answer(s)

Paul S.
Broker/Agent
Glendora, CA

Generally speaking the split you are seeing should be what the listing agent is offering the selling agent. It really means nothing to buyer or seller. The fee agreement between listing agent and seller is just that, between them. The listing agent then offers out a portion of what is being paid to him/her to a selling agent. If a buyer comes directly to the listing agent, without a broker, the listing agent keeps the entire fee amount that was contracted with the seller. The seller doesn't save any money and the buyer isn't represented by anyone. The money that the listing agent was willing to pay a selling agent goes into his/her pocket (called double ending). It really makes little sense for a buyer not to be represented by a broker when the seller is actually paying for the buyer's broker through the listing broker.

Jun 30, 2009
Report Abuse
Howard M.
Broker/Agent
Discovery Bay, CA

in 99% of the transactions I am involved in, the Seller pays the commission. As Paul stated, the agent who lists the property for sale negotiates with the Seller the amount of commission the Seller will pay, and then offers a portion of that to an agent who will bring in a Buyer. However, many of the listings we get the Seller knows we will probably find a Buyer ourselves so the Seller will ask for a reduced commission if we get both ends of the deal, such as paying 4% if we bring the buyer, or 5% if another broker is involved. The only time it has any effect on the Buyer is when the listing agent is offering little or no commission, so the Buyer's agent may go to the Buyer and ask them to pay some commission for their work. If it's a good deal and a money making investment, the Buyer shouldn't mind paying for the hard work his agent/broker is putting into the deal on his behalf. I recently had a motel sale where the Seller only agreed to a price reduction if both Brokers agreed to drop our commission, so the Buyer agreed to make up the difference. Of course, this Buyer was one in a million!!

Jul 1, 2009
Report Abuse
Cheema R.
Owner/Investor
mckinney, TX

If Buyer Agent is out of state(CA) and Property is Commercial(Motel) in (OK),how can seller (OK)himself only(without any seller agent) pay a commesssion to buyer agent,if paid then is it will be unlawful?

Jul 2, 2009
Report Abuse
Paul S.
Broker/Agent
Glendora, CA

Agents are paid in other states on a referral basis. Last year there was an appellate court decision that held that it is a restraint of trade by states that attempt to restrict such referrals. States may restrict what happens on their ground i.e. a California licensee may not go to Arizona and conduct business in Arizona without a license. However the California agent could "do the deal" from California and get a referral from the agent in Arizona. For the California agent to "list" in another state it would generally require they work through a licensed agent in that state.

Jul 2, 2009
Report Abuse
David T.
Corporate Investor
Los Angeles, CA

Does % commission typical step down as the size of the deal goes up?
For example, the owner would be willing to pay a 5% commission to listing agent to sell a $3M apartment complex, but what if the property was a $150M high rise office building, would commission % be much lower since sales price is much higher?

Jul 2, 2009
Report Abuse
Paul S.
Broker/Agent
Glendora, CA

David T. Yes the commission split often does go down as the price increases, but not every time. It depends on what the competition is doing. If everyone is offering, say 2.5% and you offer 1.75% you have seriously eliminated people willing to work on the property to sell it. The opposite holds true if you are above the crowd offering a greater commission. You attract more people willing to work on the property to sell it. In "hot" markets commissions tend to go down because things sell easier. The tighter the market the higher the commissions go. It is often cheaper to offer more commission, and get more people working on it, than to do a price reduction. If you had a $10,000,000 building that wasn't selling and you changed the commission from 4% to 5% (.5% increase to each side) that only represents $100,000 but would gain you many more agents willing to work on it. What would a $100K decrease in the price 9,900,000 do? Probably not much.

Jul 3, 2009
Report Abuse

Welcome to Answers

LoopNet Answers is where the commercial real estate community shares what they know to help each other out. And it's all for free.

Ask a question to get advice from brokers, investors, professionals and local experts.

Answer questions to raise your visibility as a trusted advisor and build new relationships.

Ask a Question

Post Question