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Curbed U: How Do Brokers' Commissions Work?

Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a house or apartment. Additional questions welcomed to capecod@curbed.com.

Ever wonder about the who, what, when, why, and how real estate brokers get paid? We'd tell you all about brokers' commissions ourselves, but decided it best to call in an expert (especially for a math-related question). Thus, to get the details on just what a broker commission is and how it works, we checked in with the Hottest Broker on the Cape & Islands, Liz Finlay of Nantucket's Great Point Properties.

The commission is a function of the deal. Of the 328 listings currently for sale on Nantucket, the average commission is 5%. This holds true in most segments of the market with the exception of the high end. For listings above the five million dollar mark, we start to see a slight slide in the commission. Based on the current inventory, it appears most brokerages are offering the same commission; however, one has to be careful discussing commissions in a general way, as it is considered price fixing and is a violation of the Sherman Antitrust Act. This is meant to protect both the consumer and the competitive marketplace.

The commission is a seller's expense and is covered in a listing agreement and therefore specific to each property. Let's assume that a buyer makes an offer of one million dollars and it is accepted. In a typical deal, there are two agencies involved: one representing the seller and the other representing the buyer. Let's also assume the commission is 5 percent. The seller would owe a commission of $50,000 which would then be divided between the two agencies, the listing agency and the agency who brought forth the buyer and the offer.
[Illustration by Eric Lebofsky]