Well, you could say the seller pays … or the buyer … or both, depending upon your perspective. Here’s the deal. Say an owner wishes to sell property. In order to effectively market the property, have potential buyers screened for the ability to pay the purchase price or qualify for a loan, and to make sure that the deal gets steered safely through the myriad of details that can cause problems down the road if not properly handled, the owner will contact a licensed and proven real estate agent or broker.
The realtor, who knows the market and current market conditions, will recommend an asking price (which might be above what the realtor thinks will be the actual sales price in order to allow for some give and take with potential buyers—if the seller is not in a rush to sell).
To figure the net gain from the sale, the seller must take into consideration the cost of the sale, which includes the realtor commission (say 6% -- but is negotiable) and “closing costs,” which include proration of property taxes, settlement of any liens (such as a loan on the property) and standard administrative fees that cover things like the release of a mortgage. From that perspective, the owner pays the realtor.
To get a desired property, a buyer must pay the asking price, or successfully negotiate a lower price (the agent representing the buyer may recommend offering a price below the asking price, to allow for negotiating room on the buyer’s side). But because the sales price includes the realtor commission, you could say the buyer pays the realtor.
The only way to cut out the cost of a commission is to deal party to party (for sale by owner). That way, a seller can afford to lower the price, perhaps beating the competition, and the buyer can get the property for less (the “savings” of the commission can be split between seller and buyer).
Because buying and selling property is relatively complicated (not as cut and dried as, say, buying a car—and involves large amounts of money), the risks involved in making a real estate transaction without professional oversight might not justify the savings. Party to party transactions are best reserved for people who have had plenty of experience buying and selling property, and who have the time and knowledge to do the marketing and to shepherd a deal through the closing process.
What a Realtor Gets
Most likely, both buyer and seller will be dealing with a real estate agent who works under the supervision and management of a real estate brokerage house, so you could have four entities involved in a single transaction: a listing agent (or selling agent), that agent’s brokerage house, a buying agent and that agent’s brokerage house.
The listing agent is the agent “hired” by the property owner to market and sell the property. The listing agent might end up finding a buyer for the property, in which case the listing agent would receive the entire commission, which would be split with that agent’s brokerage house.
If another agent (called a cooperating agent) brings a buyer to the table, and the property is sold to that party, the commission would be split between the agents, who would each split their portion with their respective brokerage house.
A form called “Understanding Whom Real Estate Agents Represent,” prepared by the State of Maryland Real Estate Commission, must be prepared and given to the seller and buyer by their respective agents. Read the document carefully and ask for clarification of any parts you do not understand.
What It Takes to Get Paid
If 6% sounds like a lot ($18,000 on a sale of $300,000, for example), it helps to know that multiple professionals must work together to effectively price, market, negotiate, handle transaction details (sometimes the job requires coordinating “cascading” closings, in which one sale is contingent upon the close of another sale), deal with lenders and sometimes contentious buyers or sellers. And much effort can be expended between “pay days.” Realtors get paid for performance.
A part of real estate transactions is what is called “closing.” A closing officer, also known as a settlement officer, is generally appointed by the title company that the buyer chooses to work with. The main duty of a settlement officer is to look over the process that goes with the closing of a deal. They take care of the paperwork, check that documents are duly signed and the transaction duly executed by collecting, holding and distributing the money involved in the transaction. They witness the closing of a deal and see that everything is carried out in accordance with the laws of the State of Maryland.
The Ron Howard Group is deeply committed to the real estate profession and to great results. We’ve been doing nothing but real estate for years and have continuously improved our efficiency and award winning capabilities. Remember, all realtors get compensation, but not all realtors are equal.
We’d love to discuss any questions you might have about how real estate transactions work, or to represent you on either side of a transaction. Give us a call.
Contact The Ron Howard Group @ 410-814-2404 or email Ron @ ron@livebaltimorecity.com.