Originally Answered: I need help with my real estate course regarding commissions?
How about this (which is a real life situation):
Joe Agent sold a house for $250,000 that showed a 6% commission; 3% for listing, 3% for the sales side.
Joe was the listing agent, but it was a referral from another licensed agent, for a 25% referral commission.
Joe was also the selling agent, but that too was a referral from another licensed agent, for a 20% referral commission.
Joe's deal with his broker is a 50/50 commission split.
Joe spent $350 advertising the property, plus $30 for color flyers, and another $40 taking the prospective buyer out for lunch.
And, his Errors & Omissions Insurance fee is $35 per side of the deal (and he has both sides of this deal).
How much $$$ will Joe ultimately net from this deal?
This kind of transaction happens all the time - although listing agents are rarely the selling agent, but it is very instructive to show the public how much $$$ agents actually take away at the end of the day - and it's never the 6%.
Here's the answer:
1. Listing side - 3% is $7500
Referral commission is 25% of $7500 = $1875
Balance of $5625 is split 50/50 with broker = $2812.50 to Joe
2. Selling side - 3% is $7500
Referral commission is 20% of $7500 = $1500
Balance of $6000 is split 50/50 with broker = $3000 to Joe.
In this case, Joe was lucky enough to get both sides of the deal, which rarely happens, but brought him a total of $5812.50.
Taking out his expenses, Joe will net $5322.50, before Uncle Sam taxes this income.
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I hope this helps.