What Is a 10% Contingency Fee in Real Estate?

What Is a 10% Contingency Fee in Real Estate?
Real estate agents invest time, money and effort to earn their fees.

Contingency Explained

A contingency fee operates in the same manner regardless of the field. The worker and the person hiring the worker make an agreement for money in exchange for specific duties to be performed. Once the agreed-to tasks have been completed, the contingency fee is paid. The fee is a percentage of proceeds. For example, in the case of a personal injury lawsuit, the attorney takes the case on, does all preparation, handles all settlement conferences and trials. If he loses the suit, the attorney receives no pay for his work. If he wins the suit, he receives a percentage of the settlement. Therefore, the more money he can get for his client, the more money he gets paid.

Real Estate Contingency

The majority of real estate agents also work on contingency. The agent has specific tasks and once completed, the agent is paid. Both the selling agent and the buying agent of each listed property earn contigency fees. In some cases, one agent handles both aspects of the sale and collects a double contingency. The contingency fee is a percentage of the sale. A 10 percent fee can work in two ways. In the first method, the selling and buying agent each receive 10 percent of the sales price for a total of 20 percent. The other method is that 10 percent total will be divided among all involved agents. A selling and buying agent splitting the fee would each receive 5 percent. If one agent represents the purchaser and the seller, the agent receives the entire 10 percent.

How the Fee Is Earned

To earn the fee, selling agents agree to guide the owner in preparing the house for show. The agent then conducts open houses and marketing efforts. The seller's agent also receives all purchase offers and presents them to the seller with advice about whether to accept.

The buyer's agent typically ascertains what the buyer is looking for in property, complies a list of properties that fit the criteria and shows the properties to the buyer. In addition, the agent prepares all purchase offers and presents them to the selling agents to take to the property owners.

Both agents coordinate to get inspections completed and pre-sale repairs made. Both agents attend the closing, usually at the lender's office and witness the paper signing.

If No Sale Occurs

A 10 percent contingency fee deal means if the house does not sell, the agent receives no money, regardless of the amount of work she puts into marketing and attempting to sell it. The agent for the purchaser does not receive a fee if her client does not ultimately purchase property she showed or negotiated for them to buy.