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Breaking Down Broker Commissions in the Hub

Ask a Sales Broker... is part of Curbed University's attempts to give you the best non-boring advice on buying, selling and renting in the Hub. Our expert answerer is Nick Warren of Warren Residential.

A reader wrote in: Explain broker commissions—who gets what and why?

Here's Nick Warren's answer: This is one of the most common questions we get. I find it is sometimes easier to understand with an example.

Let's say Warren Residential takes a listing for $500,000 and the seller agrees to pay a 5 percent commission. This means that if we sell this home, the seller is going to pay us 5 price of the sales price, which would be $25,000 if we sell it for full asking (which is not unusual in this market).

In most cases, the buyer is going to be brought to us from an outside brokerage and represented separately. In the listing agreement, we outline what we will be offering a buyer's agent for compensation and in this example we will use 2.5 percent. This means that the $25,000 commission is now split between Warren Residential ($12,500) and the cooperating brokerage ($12,500) for representing the buyer.

The buyer pays no commission to any broker at all because their agent is being paid by the listing brokerage. The $12,500 is then split with the brokerage and the agent working for the brokerage based on whatever "split" that agent is on.

So:
$500,000 sales price
5 percent commission = $25,000 (seller nets $475,000)
$12,500 — Warren Residential
$12,500 — Cooperating brokerage who brought the buyer (buyer pays nothing)
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