How is commission defined in real estate transactions?

Commission in real estate transactions is defined as a percentage of the sale price paid to agents. This is a standard practice in the industry where the commission is generally agreed upon between the seller and the real estate agent prior to the sale. It serves as compensation for the agent’s services in facilitating the sale, which can include marketing the property, negotiating with buyers, and managing paperwork.

By basing commission on a percentage of the sale price, it aligns the agent's interests with those of the seller. When the sale price increases, the agent's commission increases, providing an incentive for agents to secure the best possible price for the properties they represent. This method of compensation is prevalent because it allows the agent to earn more as the value of the sale rises and reflects their understanding of market conditions and property valuation.