The INs and OUTs of Real Estate Compensation
The National Association of REALTORS® (NAR) has posted a number of helpful resources focused on the importance of brokers and agents as champions of homeownership and the rights of private-property owners, keys to ensuring consumer access and opportunity to housing, essential ways to foster business competition, the basics of how real estate compensation is designed, and much more.
In this blog we are zooming in on the compensation aspects. At EMTAR, we agree wholeheartedly that it’s important for consumers looking to experience the American dream of homeownership to understand how real estate agents are paid for the services they provide.
The key points to keep in mind, as shared here by NAR, include:
The seller and their listing broker must agree.
“At the outset, the seller and that person’s listing broker agree on the amount the listing broker will receive for the services it provides to the seller. The listing broker and seller also discuss and agree upon an amount that the listing broker will pay a broker who successfully closes the transaction with a ready, willing and able buyer. . .”
Commissions are always negotiable.
“Commissions can be negotiated at any point throughout the transaction, including at the outset, after the results of a home inspection and after an offer has been made. . .”
Commission models vary.
“Buyers have many different choices about which broker they want to work with in terms of everything from the commission model to a real estate agent’s particular expertise to the agents’ customer service approach. . .”
Commission rates are set by the market.
“The free market organically establishes commission costs within local real estate markets based on service, consumer preference and what the market can bear, among other things. NAR guidelines ensure that the listing broker advise all other participants in their local broker marketplace what the amount of compensation to the buyer’s broker will be . . .”
Commissions can’t be included as part of a mortgage.
“Unlike mortgage broker fees, closing costs, and appraisals, real estate sales commissions are not directly linked to the mortgage loan production and therefore cannot be financed. . . For further information check out realestatecommissionfacts.com.”
REALTORS® are bound by a strict code of ethics in the home buying process.
As we emphasized in EMTAR’s previous blog, “REALTORS® are bound by NAR’s Code of Ethics to always further clients’ best interests, including showing homes that meet buyers’ needs regardless of compensation offered. . .”
Broker cooperation keeps local broker marketplaces solid.
“Because of broker cooperation, buyer and seller brokers are incentivized to share their information in their local, independent broker data hub. . .”
Listing and buyer brokers contributing to local broker marketplaces set the U.S. real estate industry apart.
“The U.S. model has long been—and is still—viewed as the best option for consumers around the world. Buyers abroad are forced to wade through a complex and fragmented market where they have to work with multiple brokerages and where there is no exclusivity so sales can fall through . . .”
You can learn more about these important topics by accessing these resources:
Fostering Consumer-Friendly Real Estate Marketplaces (overview webpage)
Local Broker Marketplaces in Action (infographic)
The Economics of Buying a Home
NAR Real Estate Compensation Facts
179 Ways Agents Who are REALTORS® Are Worth Their Compensation
About EMTAR: Chartered in 1969, our Association’s 1,300+ REALTORS® are a proud part of the 36,000+ members of Tennessee REALTORS® and of the 1.5 million+ members of NAR, all working to serve the public and protect the rights of America’s property owners. EMTAR members are known not only for their unmatched real estate excellence and high ethical standards, but also for being generous, hospitable, others-focused, loyal, hardworking, and eager to help wherever and whenever help is needed.