Who Pays Real Estate Commissions In Minnesota

Who Pays Real Estate Commissions in MN

As a top golden valley real estate agent in Minnesota, I get questions about real estate commissions on a weekly basis. This article will explain how real estate agent commissions are handled in Minnesota. It is important to know that there are many different ways a real estate agent and brokerage can handle real estate commissions. Realtors and their brokers can charge different amounts of commission and offer different commission structures depending on how they choose to operate their real estate business and real estate brokerage. The most common practice in Minnesota is for the listing agent and the listing agent’s brokerage to negotiate with the home seller a percentage of the sale price that will be referred to as the total real estate commission and determine how much of that percentage will be offered to the buyers’ real estate agent and buyers’ real estate broker. The buyers’ real estate agent and their broker in Minnesota typically receive 2.7% of the purchase price. The seller and the sellers’ brokerage can choose to offer more or less, but the industry standard as of 2017 in Minnesota is still believed to be 2.7%.  When a homeowner decides to hire a real estate agent to sell their home they will be required to sign a contract with that agent and the agents’ brokerage. This contract is generally referred to as a listing contract. When a homeowner decides to hire a real estate agent to sell their home they will be required to sign a contract with that agent and the agents’ brokerage. The listing contract spells out the terms of the agreement between the seller and the real estate brokerage that the seller chooses to hire.

Who pays the Buyers Real Estate Agent commission in Minnesota

The easiest way to explain how real estate agent commissions are handled in Minnesota is to say that the seller pays all of the commission to their real estate agent and their real estate agent shares that commission with the buyers real estate representative. This is somewhat straightforward but can be misleading depending on how you look at it. Many Realtors spread the word to home buyers that real estate representation for buyers is free. In my opinion, it is misleading to spread this information. On one hand, it can be considered free because the money is not coming directly out of the buyers pocket, but on the other hand, the seller has to consider their real estate commission into the overall price they decide to sell there home for. If the seller does not have to pay a buyers’ agent 2.7% and they negotiated that they would pay a lower commission to their agent (the listing agent) if this were the case than they could theoretically sell the home for less money or keep more of the money depending on how you look at it. This sort of commission structure is typically referred to as a variable rate compensation. In an informal poll conducted in 2017 by the Minnesota Property Group of Re/Max Results, 100 real estate agents that sell over 10 million dollars of real estate each year were asked what percentage of real estate agents they believe offer a variable rate compensation. The choices were from 5% to 100% in 5% increments. The answers were as follows: Twenty-one of the agents believed nobody offered a variable rate compensation. Sixty-two of the agents said they believed only 5% of the agents offered variable rate compensation. Twelve of the agents believed 10% offered variable rate compensation. Two of the agents believed 25% of the agents offered variable rate compensation. Three of the agents believed 50% of agents offered variable rate compensation.

What is the average amount of commission that a real estate brokerage charges in Minnesota

In the same informal poll conducted in 2017 by the Minnesota Property Group of Re/Max Results, 100 real estate agents that sell over 10 million dollars of real estate each year were asked what they thought the average amount of real estate commission charged to sellers was in the Twin Cities metro area for homes between $200,00-$700,00. Thirty-one agents answered that they believed the average real estate commission is charged to the home seller was 6%. Nine of the agents answered 6.5%. Ten of the agents answered 6.25%. Fourteen of the agents answered 5.75%. Twenty answered 5.5% and 16 answered 5%. The interesting part to me was that not one of the agents believed that the average commission paid by the seller on a real estate transaction in Minnesota was less than 5%. As you can see, there is a lot of confusion and are even more opinions on how real estate commissions are structured and paid for in Minnesota Real Estate Transactions.

Why don’t more Real Estate agents and Real Estate Brokers offer variable rate compensation?

During the 2017 poll conducted by the Minnesota Property Group of Re/Max Results, the real estate agents were asked this very question. The most common answer was that the agents did not want to encourage home buyers to try and “save money” by not hiring their own representation. Some of the agents believed that offering a variable rate compensation would “muddy the waters.” When asked to elaborate John S. said “if buyers were out looking for homes and trying to save money there would be more dual agency transactions. Dual agency transactions can get real estate agents into sticky situations if they don’t follow the rules.” To summarize dual agency in real estate transactions, the listing agent is essentially representing both parties to the transaction. The law in Minnesota says that the dual agent cannot represent one party of the transaction to the detriment of the other. This is where the waters get muddy and the possibility for an unhappy party increase dramatically. While there are plenty of real estate agents that want to represent both sides and get both sides of the commission, there are plenty of other agents that don’t want to set themselves up to have an “uncomfortable situation” or unhappy customers.

Real Estate Commissions in Minnesota

As you can see there are many different ways to handle real estate commissions in MNThere are also many different ways to analyze and explain who is really paying the real estate commissions. Like so many things in life, it really comes down to perspective. I like to explain the entire process to my clients and make sure they understand the many different ways real estate commissions are handled so that they can determine the best fit for them. I believe that the services and knowledge I offer to the buyers I work with is worth hiring me even if they have to pay me directly out of their own pocket, but that, of course, is a biased opinion from a top real estate agent in the Twin Cities Metro Area of Minnesota.