What is the Commission for Real Estate Agents in Texas?

Do you ever wonder how real estate agents in Texas earn their commissions? It may seem like a complex process, but let's break it down together. In this article, we will explore the ins and...

Do you ever wonder how real estate agents in Texas earn their commissions? It may seem like a complex process, but let's break it down together. In this article, we will explore the ins and outs of real estate commissions in Texas and learn who gets paid in a transaction.

How a Real Estate Commission is Figured in Texas

Traditionally, the commission earned by a real estate agent in Texas is a percentage that is divided among four parties. Yes, it may sound like a lot of splitting, but let's meet the players involved.

Who Gets Paid in a Transaction?

First and foremost, real estate agents share their compensation with their sponsoring broker. During the hiring process, they negotiate the percentage of commission they will share. So, right off the bat, there is a split between the agent and their broker.

In addition to the agent and the broker, there are usually two different brokerages involved in a transaction - one representing the seller and the other representing the buyer. Each brokerage has its own sponsoring broker and agent working in the transaction. This means more splits to consider.

Now that we know who is involved, let's dive into the breakdown of a traditional commission split.

How Traditional Commission Splits Work

Traditional commission splits follow this structure:

  1. The commission amount for the transaction is negotiated between the seller and the listing agent. Once they agree on an amount, it is included in the listing agreement - the contract between the seller and the listing agent.

  2. The listing agent then offers a percentage to a broker who will find a buyer. This broker is called the cooperating broker.

  3. When the house sells, the buyer's real estate agent receives a percentage of the commission as well.

It's important to note that both the listing agent and the buyer's agent share their commissions with their sponsoring brokers. This means that the commission for the sale is often divided equally among these four parties. However, it's worth mentioning that these splits are negotiable.

Commission Split Example

To better understand how commission splits work, let's consider an example. Imagine a home is listed for $300,000, and the seller and listing agent agree on a 6% commission. When the house sells, the entire 6% commission, which is $18,000, will be used for paying commissions.

If the listing brokerage and the buying brokerage decide on a 50/50 split, each brokerage will receive $9,000 to split with their agents. Let's assume the buying agent agreed on a 50/50 split with their sponsoring broker, resulting in $4,500 for each. Furthermore, let's say the listing agent and their sponsoring broker also agreed on a 50/50 split. In the end, all four parties would receive $4,500 each.

  • Home sale price: $300,000
  • Commission (6%): $18,000
  • Listing broker’s commission (1.5%): $4,500
  • Listing agent's commission (1.5%): $4,500
  • Buyer’s broker’s commission (1.5%): $4,500
  • Buyer’s agent's commission (1.5%): $4,500

It's important to remember that commission rates in real estate are not uniform and are subject to negotiation. In fact, attempting to impose uniform commission rates is a violation of federal antitrust laws. According to List With Clever's most recent survey, the average commission for realtors in Texas is 5.49%.

Does the Buyer or Seller Pay the Commission?

In most cases, the seller pays the commission, unless there is a specific negotiation to split it with the buyer. However, it's worth noting that the commission is often factored into the selling price of the home. This could lead to the argument that the buyer is indirectly paying some, if not all, of the commission.

Breaking Commission Tradition

While traditional commission splits are the norm, there are always alternatives. For example, RedFin offers to list properties for a 1.5% commission fee, acting as both the listing brokerage and listing agent. This alternative model often costs only half of the traditional approach.

However, the commission for the buyer's broker and agent remains the same. This means that if you bring a buyer to a RedFin property as a real estate agent, you can still earn your normal commission. While this alternative may save the buyer and/or seller on potential costs, some customers have complained about poor service quality with RedFin.

How commissions are split

Caption: In a typical commission split, all parties involved receive a portion of the commission based on the agreed percentages.

In conclusion, understanding the commission structure for real estate agents in Texas is essential for both buyers and sellers. While commissions may vary, it's crucial to negotiate and clarify the terms of commission splits during the hiring process. By doing so, everyone involved can ensure a fair and transparent transaction.