Craig Franklin Chambers, Attorney at Law

January 2, 2016

How Do Real Estate Commissions Work?

Denver Real Estate Law and Family Law Blog. (Vol 1.69 ) January 2, 2016 

By Craig Franklin Chambers  Esq. 7851 S. Elati Street #204, Littleton,  CO 80120

The Littleton Lawyer

As a long-time Littleton real estate broker and real estate lawyer practicing family law, divorce and real estate law in Littleton, Lakewood, Highlands Ranch, Denver, and the surrounding areas, I run across clients who are confused as to how real estate brokers are paid and how real estate commissions work.

In a real estate transaction there is the broker known as the "Listing Broker" who works with the seller in marketing the home, and the "Selling broker" who works with the buyer in finding you a home. Colorado real estate brokers are licensed by the Colorado Real Estate Commission who promulgate standardized forms to contemplate how brokers get paid in residential real estate transactions.

These forms as written by the Commission are exclusive contracts between you, (the buyer or the seller)  and the broker. That means that you are obligated to the broker--either working for you as a Selling Broker or a Listing Broker-- if you enter a real estate transaction during the length of the contract.

Although each broker can be paid by their principle, traditionally the Listing Broker charges the Seller a "sales commission" that includes the compensation for both brokers as contemplated in the listing agreement. Although this amount is negotiable from broker to broker, this amount usually runs at 5-6% of the sales price. This set-up is counter-intuitive because the Seller is paying the brokerage fee for both his broker and the Selling broker ho works for the Buyer.

As part of the marketing of the home, the Listing Broker advertises a "co-op" fee or "success fee" for the cooperating or Selling Broker in the Multiple Listing Service, resulting in that portion of the sales commission in the listing being paid to the Selling Broker.

This co-op usually runs at 2.8% of the final sales price. However, there are no "standardized" fees for real estate services in Colorado. The Listing Broker's fees (his portion of the sales commission) are negotiable, and the fees vary depending on the real estate company and the services and advertising the particular broker offers.

The title company pays the brokers these commissions at the closing of the real estate transaction, and the fees are generally only owed if the transaction closes.

Real estate commissions  are based on contracts--first on the contract between the Seller and the Listing Broker; second,  the co-op is a contract between the Listing Broker's real estate company and the Selling Broker's real estate company. If the property is not subject to a listing agreement,  such as in for-sale-by-owner (FSBO) situation, no real estate commissions are owed, and it's up to the buyers and sellers if they want their real estate advisors paid.

What I recommend is that if all you are looking for is someone to do the paperwork for a real estate transaction and to overseer the transaction through closing, consider using a Colorado real estate lawyer . The legal paperwork is fairly simple and a lawyer can charge by the hour or offer a low, flat-fee rather than charge a percentage of the sales price.

If, on the other hand, you want real estate market advice, and desire the full services of a real estate broker, make sure that both the scope of the broker's services and the compensation are spelled out in the Colorado Real Commission Approved forms.

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    Denver Real Estate and Family Law Attorney

    Licensed to practice law in Colorado since 1997, I have a B.A. from Vanderbilt University and a law degree from the University of Denver.

    7851 S. Elati St. #101 Littleton, CO. 80120

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