Real Estate Brokerage Compensation
September 18, 2019
The real estate brokerage compensation that the seller typically pays a brokerage company, is always negotiable.
There is no such thing as a standard rate of commission.
A licensee working for that brokerage company is always paid commission money by the managing broker, so typically a seller will pay the commission amount of money to the brokerage company, the brokerage company will then pay the licensee whatever their agreement is. As a licensee working for a real estate brokerage company, you can be classified as either an independent contractor or an employee. Most of the time, licensees are considered to be independent contractors.
As an independent contractor, your time is your own. You can work as much as you want to or as little as you want to. Also, as an independent contractor, you will pay your own taxes to the government. The brokerage company does not withhold any money from the total commission check. Conversely, if a licensee is treated as an employee, then the employer would tell the employee licensee how many hours to work, what days, etc. Also, the employer would have to withhold taxes out of the employee's paycheck.
Multiple Listing Service – MLS
Many areas have what's called a multiple listing service. A multiple listing service is where brokers get together and agree to cooperate and show each other's listings and share commission agreements. With that said, however, multiple listing services have to be careful not to get together and set commission rates for an area. All the brokers cannot get together and set a common commission rate. This would violate the Sherman antitrust laws, which prevents price fixing.
And finally, when does a licensee earn a commission? A licensee earns a commission upon producing a buyer who is ready, willing, and able and meets the terms of the seller. If the brokerage company has done that or a licensee has done that, the commission has been earned.
What if we have a transaction waiting to close and before closing, we find out that the buyer is not able to qualify for a loan. Has the licensee earned his or her commission? The answer is no because the buyer may have been ready and willing, but was not able to because of not being able to qualify for a loan.
Conversely, if before closing, a seller's job transfer does not go through, for example, and then the seller cannot sell to the buyer, has the licensee earned a commission in this situation? The answer is, yes, because the buyer is still ready, willing and able. It's just the seller who is not able to transfer title.
Principles of Value
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In this article, we discuss how a property's value is determined, the purpose of appraisals, and the different types of depreciation. Learn more by reading this short and focused article on property appraisal.
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Approaches to Valuation
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In this short article, we review the four main approaches for property valuation - Market Data, Cost, Income, and Appraisal. We've outlined these four different approaches in an easy-to-digest manner that will help you learn how properties are appraised and valued.