A Real Estate Commission Invoice is a type of invoice used by real estate property agents and brokers to claim the commission earned after facilitating the sale of a property such as a home, apartment, or land.
A Real Estate Commission Invoice Template is a form used as a reference for customizing an actual real estate commission invoice to suit the user’s needs, usually a real estate agent or broker. Thus, they save the user the hassle of recording real estate business transactions.
Real estate commission invoices assist agents and brokers in receiving payment for their sales commissions and record important accounting data. Usually, a real estate commission invoice contains information specific to the real estate industry, including the details of the property on sale, the selling price, the agent’s commission rate, and the total amount due.
The commission rate is usually arrived at when making a listing agreement before the listing of the property.
Components of a Real Estate Commission Invoice
A real estate commission invoice is a simple document, but it still needs to be presented formally and professionally.
Below are the main components of a real estate commission invoice to make it formal and professional:
- Name and contact information: The name and contact information of the real estate agent, the selling company, and the client should be included to identify the parties involved in the business.
- List of deals with the sale price: This indicates all the deals completed and the amount of money made on each one.
- Commission rate: The commission rate section shows the rate of commission for each deal. This should be recorded to aid in calculating the total commission owed.
- Tax deduction: Where applicable, the real estate commission invoice should indicate the taxable amount, fee due, and the tax due.
- Total due to the realtor: This total amount mentioned refers to the sum of the money that a client pays to the realtor.
- Payment details: This section offers a complete information about the payment terms, including the payment due date and the account to which the payments should be made.
- Penalties: These are penalties imposed for late payments.
What is a Real Estate Commission
A real estate commission is a percentage paid to an agent or broker after a property is sold. The standard percentage real estate commission is 6%, but it varies sometimes depending on the nature of the market or if the property on sale is worth a very high amount (above $1000,000). The commission rate is usually agreed upon by the owner of the property and the listing agent when making a property listing agreement.
Real estate commission is classified into two categories:
Exclusive right to sell commission
This category requires that the property be sold directly through the seller’s agent. Therefore, the agent will be paid a commission regardless of who finds the property buyer.
Exclusive agency commission
The terms of this type of commission are usually used by property owners who want to sell their property but find a buyer without the assistance of their agent. The exclusive agency requires that the agent’s commission be only paid if a buyer is brought in on their behalf.
Procedure of Using Real Estate Commission Invoice
Below is a description of how real estate commission works:
These are the individuals involved in the selling of a real estate property to earn some commission.
Commonly, real estate commission is shared among four parties in a typical real estate transaction:
- The agent who took the listing from the seller, known as the listing agent.
- The broker who employs the listing agent, known as the listing broker.
- The agent who represents the buyer, known as a buyer’s agent.
- The broker who employs the buyer’s agent, known as the buyer’s agent’s broker.
Usually, real estate commission is about 6% of the overall sale. However, the commission might be greater or lower depending on the market nature.
Property owners selling property worth over $1 million (USD) can negotiate with the listing agent to reduce the commission charges to about 3% or 5% of the total sale.
In many cases, the seller pays the commission unless the buyer and the seller agree on a split. In some cases, sellers include the commission in the asking price and claim that the buyer should pay at least a portion of the commission in either case as a result of the high asking price quoted.
When sharing the commission earned, both the seller’s and buyer’s agents usually table an agreement with their sponsoring broker stipulating how the parties will share the commission earned. It might be a 50/50 share between the brokers and the agents or anything else they’ve agreed upon.
Real estate commission calculation criteria
A real estate commission is determined by multiplying the agreed percentage commission by the total amount a property was sold or the entire lease rate of a property for an agreed lease period.
Below is an example of calculating real estate commission from a sale of a real estate property:
Suppose that an agent lists a property for $100,000 at a 6% commission rate; a total commission of $6,000 is earned. If the property is sold for the asking price ($100,000), the listing broker and the buyer’s agent’s broker receive half of the total commission, or $3,000 ($100,000 sales price x 6% commission ÷ 2). The total commission is then divided between the brokers and their agents.
A commission share between the agents and brokers can be in any ratio agreed upon by the parties. More experienced and top-producing agents are often paid a higher proportion of the commission.
In a 60/40 split, each agent receives $1,800 ($3,000 X 60%) while each broker retains $1,200 ($3,000 X 40%).
The ultimate commission breakdown would be as follows:
- Listing agent: $1,800
- Buyer’s agent: $1,800
- Listing broker: $1,200
- Buyer’s agent’s broker: $1,200
Note: In instances where one agent represents both the property seller and the buyer (Dual Agency), the agent’s commission is paid to one agent.
Negotiation of the commission
Real estate commissions typically range anywhere between 4% and 6% of a property’s sale price. However, the percentage of the commission offered can be negotiated depending on the nature of the property on sale and its marketability.
The parties involved, the agents and the brokers, also negotiate how to share the total commission earned from the sale of a property.
The signing of the contract
Upon agreeing on the commission rate, the listing broker and the listing agent should sign a listing contract to allow them to start working on the listed property.
Close on the property
The final stage in completing a real estate deal is closing. The closing date is determined during the negotiating phase and is generally done some weeks after the seller accepts the offer formally. When the seller accepts, signs, and returns the purchase offer, also known as a purchase agreement, the closing process officially commences. The buyer receives ownership of the property on the closing date.
When a seller’s deed is given to the buyer in most countries, the property owner is considered formally transferred. During the closing, the following parties are usually present: the property seller, the property buyer, real estate agents, attorneys, the mortgage lender (where a creditor funds the purchase), and the title company. If the property is purchased with a mortgage loan, the mortgage lender will need a title search, title insurance, appraisal, land survey, and the involvement of attorneys.
Tip: Always uphold ethical and legal responsibilities and act in the best interests of your clients. Get the greatest offer for your client and close as soon as reasonably practicable.
Accepting the commission
When the transaction is completed, the agent sends the real estate commission invoice to the client for payment, in return for which, he or she is paid the agreed-upon commission.
Following are some free downloadable templates for you:
A real estate agent may be quite helpful in the hunt for a new house, office space, or any other real property. After each transaction, a real estate agent is entitled to a commission for the services they provide. Therefore, they usually present a commission invoice to the client to claim their pay. The commission invoice describes the reason for the payment and contains all of the information required for the client to make a payment to the agent.
To ensure that your real estate commission invoice bears all the critical information and looks professional, create it by downloading the template from our website.