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How do real estate agents’ and brokers’ commissions work?

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The fee a seller pays a broker is typically 6 percent

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Editor's Note: This post was originally published in March 2013 and has been updated with the most recent information.

Theoretically, it's simple. The real estate agent lists a house for sale, you like it, you negotiate a price with the agent, the seller accepts, the house closes, and the seller pays 6 percent to the broker as their fee. But in reality, it's not that simple.

There are two kinds of agents: buyers' agents and sellers' agents. In the Hamptons area, buyers' agents are virtually nonexistent compared to other parts of the country, probably because real estate attorneys sub somewhat for the buyer's agent during the contract phase of the deal. If you see a house you like and call the agent and ask to see it, you're dealing with a sellers' agent. That agent works for the seller—not for you, the buyer.

But what’s the difference between agents and brokers? Both real estate agents and brokers must be licensed. Brokers must pass a harder exam than agents, but aren’t necessarily more knowledgeable. Agents work for brokers; they are licensed to sell real estate but they can't work independently. Some brokers work directly with home buyers and sellers, and some have a staff of agents working for them. Not all brokers work for themselves; many work for real estate companies or franchises.

Typically, the fee a seller pays a broker is 6 percent, but that can vary. That fee is for a full-service brokerage. Cut-rate brokerages are also becoming better known, but are less popular in the high-cost Hamptons. However, fees may be negotiable, probably more so in smaller brokerages. Agents are more likely to accept a 5 percent commission if the seller is a repeat client or buying as well as selling. Also, higher-value properties sometimes have a lower percentage rate.

Agents generally are paid a percentage of the commission received by the brokerage from the sale, sometimes as little as 30-40 percent. Top agents receive more. In addition, top agents get what’s known as a “split”—or, a percentage of the commissions they bring in. This is usually a factor that contributes to the broker’s ability to attract top talent in the industry.

What about co-listings? If two or more brokers list a house, they split the commission, but that commission may not always be split evenly.

Typically, buyers don’t pay any commission on their side. The transfer taxes will be of greatest concern to buyers and making sure to record fees and anything associated with financing throughout the process.

Buyers: Do your research and remember that you are the one on the hook for paying hundreds of thousands—if not millions—of dollars for this property. No one else. Don't expect anyone else to guard your interests as closely as you do.

It’s best for you to educate yourself on the fees and expenses, and then make an informed offer. Be aware of what amount a seller will take away from your deal, and keep that in mind when negotiating.

Sellers: Choose the person who lists your house wisely. How successful are they at marketing your kind of property? How savvy and knowledgeable are you about the local real estate market?

Remember, reducing one percentage point of the commission can mean tens of thousands of dollars more in your pocket at the end. On the other hand, successful agents got that way because they know how to sell properties.

They're professionals and you're not. Good luck.