How are commissions earned by a broker determined in a real estate transaction?

Commissions earned by a broker in a real estate transaction are primarily determined by the agreement made between the broker and their principal, which is typically the seller or the buyer. This agreement outlines the terms of the commission, including the percentage of the sale price or a flat fee that the broker will earn upon the successful completion of the transaction.

This contractual relationship is crucial because it allows both parties to negotiate and agree on the specifics, taking into account various factors such as the level of service provided, the complexity of the transaction, and the prevailing market conditions. While market trends, standard commission rates, and local real estate board guidelines can influence commission structures, the definitive agreement between the broker and their principal governs the specific commission for each transaction.