What is a commission in real estate?

A commission in real estate typically refers to a percentage of the selling price that is paid to real estate professionals for their services in facilitating a transaction. This approach aligns with standard industry practices, where agents earn a commission based on the value of the property being sold, rewarding them for their efforts and successes in negotiating and closing sales.

The structure incentivizes agents to maximize the sale price, as their income is directly tied to the outcome of the sale. The commission is usually split between the listing agent and the buyer's agent, reflecting the collaborative nature of real estate transactions.

Other options present different concepts that do not accurately define a commission. A fixed fee would not vary with the sale price, a flat rate paid annually doesn't characterize the commission structure common in the industry, and an administration fee is unrelated to agent commissions, as it pertains to processing costs rather than payment for professional services rendered in a transaction.