Real Estate Commission & Closing Costs: What You Need to Know

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You’ve had enough. The house down the block from yours  just sold for way above asking price and you want in on the action, too. You’re packing up to move to a new downtown Austin apartment. But first; the sale. If you are selling your home for the first time, no matter where you live, you are going to have expenses, and one of the biggest is your agent’s real estate commission. Traditionally, real estate commissions have been set at six percent of the sales price.

So, if your property sells for $100,000, your agent gets $6,000. That may not seem too bad, but if you sell a property for $500,000, the realtor fees are a whopping $30,000. Of course, the first thing to do before you consider selling is get a good real estate commission calculator.

While many wonder how realtors get paid, now you know that their fees come from the seller. When you are trying to figure out how much do realtors make, there are other things to take into consideration, however.

Split Commissions

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The listing broker is the person that gets the initial business from you. You contact an agent and contract with them to list your property. While the real estate commission rate may be the standard six percent, if another broker is involved, it is customary to split the commission. If the first-time buyers are represented by an agent, the listing broker customarily shares or splits the commission with the buyer’s broker. The sale amount can be split 50/50, or in some cases 60/40, or in some other cases it can be a different pre-agreed-upon amount. In addition, two brokers can agree at any point to adjust their commissions. The point is that your listing broker is probably not going to walk away with the entire six percent of the property’s sale price.

This handy real estate commission calculator can  help give you a better idea of what to expect:

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Broker’s get a slice of the real estate commission pie

In the above examples, we are assuming that the listing broker has his or her own company and is not working for someone else. If the listing broker works for a real estate firm, there is another split involved because the listing broker’s company will take a piece–and sometimes a large piece of that three percent or the real estate commission–leaving the actual listing broker a much smaller amount.

The split between the listing broker and his or her company is determined by the listing broker’s employment contract. Therefore, your listing broker could end up receiving a much smaller amount than six percent.

Realtor Fees and Exceptions

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Now that you know the basic structure of realtor fees, please realize that the six percent real estate commission figure is not set in stone, and the industry has seen some commissions capped at five percent for upscale homes. Understand that you are free to make a deal with your agent before you sign a contract. If you have a million-dollar property, you can be honest and ask the agent what you would be getting for his or her $60,000, and if there is a way to cut the real commission rate. On a million-dollar sale, the real estate commission calculator will tell you that for every percentage point you cut from the commission, you will save $10,000, so it is definitely worthwhile to negotiate.

Closing Costs

Closing costs are the funds that various providers and lenders charge to originate, process and disburse your loan. The list can be dizzying:

  • Loan Origination Fee
  • Discount Fee
  • Processing Fee
  • Underwriting Fee
  • Wire Transfer
  • Credit Report
  • Tax Service
  • Flood Certification
  • Title Insurance
  • Escrow/Signing
  • Courier Fee
  • Appraisal
  • Recording
  • Homeowner’s Insurance first year premium
  • 6 Months’ Property Tax Reserves

And these can vary according to the type of loan you have applied for.

Who pays for costs?

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Closing costs usually come out of the buyer’s side, but buyers and sellers do make deals to shift these costs. Someone may make an offer on your home and give you the asking price, but at the same time they may require you to pay all of the closing costs. Sometimes a buyer will agree to a lower price and then add in the closing costs, so those costs are basically financed by the loan. Sometimes buyers and sellers will negotiate with the title company in order to reduce some fees.

While some fees are state or federally mandated—like title insurance in some cases—others like processing fees and document preparation charges can be negotiated out.

When you sell your house, an appreciable amount of cash changes hands, and you must realize that a lot of people want a piece of it. Before you sign any real estate sales contracts, make sure you understand them thoroughly, including real estate commision and costs involved.   If you are unsure of any particular features or clauses, have a lawyer look at them.

Homeownership is a great thing, but you need to fully understand the details before diving in!

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