How are commissions typically structured in a real estate transaction?

In a real estate transaction, commissions are typically structured as a percentage of the sale price agreed upon in the listing contract. This percentage is negotiated between the seller and the real estate agent before the property is listed for sale. The standard practice is that this commission is only paid upon the successful closing of the sale, motivating the agent to secure the best possible price for the seller.

This structure aligns the interests of the agent and the seller, as the agent's earnings increase with a higher sale price. It also commonly reflects the value of the service provided by the agent throughout the transaction process, including marketing the property, negotiating offers, and assisting with closing procedures. The use of a percentage rather than a flat fee or fixed hourly rate helps to account for the varying values of properties and ensures that the agent's efforts are proportional to the sale price achieved.

In contrast, flat fees or fixed hourly rates are less prevalent in real estate since they do not correlate as directly with the sale outcome, and compensation determined solely by the buyer is also not a standard practice, as it would introduce complications into the commission structure and agent motivation.