How do brokers earn their commissions?

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How do real estate brokers earn their commissions?

All real estate brokers and salesmen, whether licensed or not, earn their basic income from commissions for closing deals and transactions. By facilitating the consummation of a sale, brokers and salesmen typically earn a standard fee of 5% of the total price, payable by either the seller or buyer depending on the stipulations indicated in the Authority To Sell and/or Buy, or any document of similar import.

As a rule, however, only licensed brokers and their accredited salesmen are entitled to the broker's commissions. If you are not a licensed broker, you should secure a notarized power of attorney for you to be entitled to a broker's commission, by way of an exception.

However, the 5% commission is only a standard rule, you can go lower or higher depending on the peculiarities of the transaction. In some cases, brokers stipulate for an overprice clause which may go up to 20-50% of the selling price, although this clause is discouraged for ethical and professional reasons.

For the more experienced brokers, there are other sources of commissions aside from a sale transaction. Facilitating the consummation of a lease contract is one source of commission which can range from 1-2 months of rent depending on the length of lease as well as terms of deposit required by the lessor.

In the last five years, almost all banks in the Philippines have offered various commission schemes to licensed brokers in order to move their inventory of foreclosed real properties. In fact, many experienced brokers have built their practice around selling and disposing of these bank acquired real properties.

The open secret of many real estate brokers is maintaining a regularly updated list and inventory of real properties for sale and rent in their respective localities. However, that is only the first part of the story. The more difficult part is how to market these available real properties to prospective buyers and how to protect the broker's efforts especially his commissions.

There is only way to protect your commissions - proper and well prepared documentation, like stipulation on non-circumvention giving the broker the stipulated commission in the event of future sale. Too many frustrations of brokers arise from the closing of a sale transaction where they initiated but the buyer, for some reasons, have deliberately delayed the purchase of the property for several months or even years.

Except for those brokers who are in-house marketers of large real estate projects of well established developers, a great majority are still on their own trying to earn their commissions. A well defined plan of action including a marketing strategy will spell the difference of the success of these brokers, where the men will be separated from the boys, so to speak.