Even if you’re only a speculative participant in today’s housing market, questions like, “How much would I make selling a million-dollar house” appeal to the imagination.
Who knows what tomorrow may bring? No matter what the bottom line, if you do find yourself in any housing sale, it helps to be familiar with the sort of equation that determines how much your agents get paid.
In this example, we’ll consider three fictional real estate agents. Arnold has just begun his career with a national brokerage, Betty is an experienced agent on billboards around her city, and Charles is an independent agent who’s been approved by Clever.
Each of these agents is a licensed listing agent.
Who Pays The Agents?
Let’s say three million-dollar homes on the same block are up for sale for exactly $1 million each—even though it’s rare for a house that expensive to be listed for exactly what it’s worth. And let’s assign all our listing agents to one house each.
In the case of Charles, the details of commissions will have been cleared up well before the time of sale. This is because Clever, the referral service which sent him the business, opts to take only 1% sales commission on houses that sell for more than $350,000.
Because Charles happens to not work with a broker, he will end up with the portion of the $10,000 commission allotted to him by Clever (because 1% of $1 million is $10,000).
Now that Charles’s house has sold, let’s remove Clever from the block and see how the competition fares. The market’s neutral, the neighborhood is nice, and Arnold and Betty’s houses end up selling on the same day. How do they get paid?
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How Are Commissions Traditionally Structured?
It’s not always clear to sellers how much their listing agents actually pocket from the sales of their houses.
Here’s how it works:
A broker typically employs a group of individual real estate agents, who compete for your and other sellers’ business. The listing agreement you and other sellers sign, which puts your house on the market, usually stipulates that only a broker can collect fees and pay out commissions on the pending sale.
So your money goes to the broker, and some of that money goes to the selling agent. If you were to bypass referral agencies and work directly with a brokerage, that up-front fee to the brokerage is not 1% but usually somewhere on the order of 3%.
So Arnold and Betty’s separate brokerages each collect $30,000 from the sales of these houses.
Recall that Arnold is a new real estate agent whereas Betty is known throughout the city. This being the case, Arnold is likely only to collect 30% to 50% commission from his brokerage, which can leave him with significantly less than $10,000 once marketing expenses are deducted.
Meanwhile, Betty might make off with 100% commission with only the paltry sum of desk fees to deduct from the $30,000 cash bundle.
What About Buyer’s Agents?
Most of the time, a listing agent will agree to a cooperative deal with buyer’s agent such that the two parties split equal portions of the total commission.
Because this is a side agreement of sorts, it does not alter the original seller’s commission of about 3%, but rather makes things so that the buyer’s agent also gets about 3%.
Under what’s called a Buyer’s Broker arrangement, the listing brokerage and selling agent act on behalf of the buyer. In such a pact, the seller technically is responsible for paying the fee the buyer owes to the buyer’s agent.
In practice, this means that all money collected by both the seller’s and buyer’s agents in a sale comes from money paid by the buyer.
How Can I Save Money?
Think back to Charles. If Charles sold your home, you still owe 3% to the buyer’s agent, but only 1% to Charles. So from the sale of your million-dollar home, you get to keep 96% to 97% (we’ll take a conservative estimate of $965,000).
While such a deal may seem unfair to Charles, consider that the online referral agency won him the business in the first place. Rather than work with a listing broker, Charles does business with Clever and gets direct access to a steady flow of leads — letting him focus on the task of selling the house.
Contrast that example against Betty and Arnold, whose brokerages collect closer to $60,000 total — nearly double the amount Clever receives from a million-dollar sale.
Clever is just one of the handful of ways there are many ways for sellers to save on realtor commission. If your house lists for anything less than $350,000, then the flat fee for commission is just $3,000.
What’s more, you’ll only have to pay if and when the home sells — that means there’s zero initial investment needed to speak with a top-rated Clever Partner Agent.