Is there a fee when you sell a property? Is there a fee when you buy a property? These are excellent questions, and it's essential to have a clear understanding of how fees work, and how REALTORS® earn a living. The following may shed some light...
Most of today's workforce is compensated by an hourly wage, or a weekly salary. REALTORS® however, are compensated with commission fees. A commission is a written authority giving a person the right or duty to perform a service, and the fee is 'normally' a percentage of the final sale price of the property.
To begin, a homeowner hires a REALTOR® to represent him in a future transaction, which consists of two sides - 'sell' and 'buy'. Usually, there is a REALTOR® working on behalf of the Seller, and a different REALTOR® working on behalf of the Buyer - multiple representation occurs when a REALTOR® acts for 'both' of them. The Seller agrees on a commission percentage for a 'total service' package, which includes placing the home on the local MLS® System where other REALTORS® and their Buyers can view its details. This percentage can vary between REALTORS® and the brokerages they work for, and can differ according to the level of marketing the Seller is seeking. The percentage is split between the REALTORS® upon the completion of a successful deal. At this point, it appears the homeowner is compensating both REALTORS®, which is probably true in 99% of the deals that are written - however, it is also possible for a Buyer to 'hire' a REALTOR® and compensate them directly.
The Nitty Gritty
Now... to answer the opening questions - Yes, there is a fee when you sell, and there is 'rarely' a fee when you buy. This poses another question however, "Why is it done this way?"... Well, most Buyers considering home ownership, will save for a down payment and also the required closing costs. Few have enough money left over to compensate their REALTOR® as well. So, to keep the market moving, the Buyer actually builds their REALTORS® fee into the mortgage he places on the property - whether he's aware of it, or not. Real estate, like any other commodity, has fees already built in, and fully appreciating this concept makes it easier to follow the overall flow. In essence, the Buyer uses the services of a REALTOR® to locate a home and negotiate a deal, who will be compensated from the shared commission percentage from the Seller. After paying the agreed upon market price - which has fees built in, then both parties will have fulfilled their respective agreements with their REALTORS® when the fee is deducted at closing. This is verified by experts who agree with the following statement...
"If there is no Buyer for the property then there is no deal, and if there is no deal then there is no commission fee to pay. So, in effect, the Buyer 'creates' the fee just as much as the Seller 'pays' the fee when a deal is struck. Both parties share in the cost."
REALTORS® are compensated after the closing date - the day the Buyer pays for the home, and receives the deed of ownership from the Seller. However, if a deal is never made with the client, then there is no compensation. REALTORS® actually work for 'free', unless there was a mutual agreement to hold a retainer fee of some kind. When a REALTOR® helps a Seller, he incurs the costs of 'marketing' the property from his own pocket, and provides his personal time and effort in hopes of making a sale. If a REALTOR® helps a Buyer, he incurs the costs of 'locating' a property from his own pocket, and provides his personal time and effort in hopes of making a sale. Because of this, most REALTORS® like to provide concrete evaluations for Sellers to arrive at sound listing prices, and also why REALTORS® like to have signed Buyer contracts when providing services to Buyers. Sellers who properly price their home at the outset, and Buyers who sign an agency contract, are showing a 'serious nature' to their future transaction, and also 'good faith' to their agency relationship with their REALTOR®.
One final note... REALTORS® are actually entrepreneurs running their own small business underneath their brokerage's name. Like any business, REALTORS® have many costs to tend to, including: Real Estate Board dues, association fees, insurance, marketing and prospecting costs, license and education fees, phones, software applications, Internet service, etc. And, prior to all of this, a percentage of their commission cheque is handed to their brokerage, because the office has costs as well, such as: administrative staff, receptionists, phone systems, institutional advertising, office equipment, and all maintenance, insurance, taxes, and utilities, associated with the building, etc. Indeed, your commission dollar travels a great distance in paying for all the support you're looking for, to get you 'the best deal possible'.