A real estate commission invoice is used to request payment from a home seller after their house has been successfully sold with the help of a listing agent’s services. According to the listing agreement, the real estate commission invoice should state the percentage amount owed and the total amount due upon the closing date.
What is a Real Estate Commission?
If it weren’t for real estate commissions, real estate agents would not sell homes. A real estate commission is how a real estate agent makes their money when they sell a home on behalf of a homeowner. A real estate commission is negotiable but the standard rate is 6%. This rate is defined in the listing agreement which is signed between a homeowner and a real estate agent prior to listing a home for sale. After a listing agreement is signed, the agent then has a fiduciary duty to the homeowner to act in their best interests for as long as the listing agreement is active, which is typically 6 months. A listing agreement is signed under one of the following conditions:
Exclusive right to sell – The sale of the home has to go directly through the seller’s agent. The agent will collect a commission no matter who finds the buyer.
Exclusive Agency – Typically used by homeowners that wish to sell their home if they find a buyer outside of their agent’s services. The agent only collects a commission if a buyer is brought on their behalf.
How Does a Real Estate Commission Work? (Who pays?)
When a home sells, the home seller is the one who writes out a check to the listing agent. The listing agent then has to share half (3%) of the commission with the buyer’s agent. Unless the listing agent is representing both the buyer and the seller (called Dual Agency), the commission will be between both agents.
An agent must disclose to both the buyer and the seller that they are representing both in dual agency. It makes it hard for an agent to act in good faith to each party under dual agency which is why dual agency is illegal in most states. Therefore, dual agency should be avoided no matter if it’s legal or illegal in your jurisdiction.
For homeowners that decide to list their home without hiring a real estate agent, called a “For Sale By Owner (FSBO)”, they will not have to pay a real estate commission when selling their home. However, by not hiring an agent, they could be doing themselves a disservice by not listing their home at the correct price. A price too high will not get any offers and the home will become stagnant on the market. A price too low will undervalue the home to an eager buyer. The biggest downside to not hiring an agent is that the property will not be seen on the MLS (Multiple Listing Service).
Average (Standard) Real Estate Commission
The average real estate commission is 6% when a residential property is sold. The commission is split in half and shared by the buyer’s agent and the seller’s agent. The split is negotiated between the buyer agent and the seller, however it’s typically split in half (each getting 3%). Homeowners selling expensive homes (1 million +) can usually negotiate a listing agent down on their commission percentage in the range of (3% – 5%).