How A Real Estate Advanced Commission Works

A commission advance is usually made possible by an intermediary company that offers real estate agents a portion of their commission for a fee, which is then repaid at closing. If the percentage of the fee is reasonable, this can be a cost-effective way for an agent to use their commission right after going under contract.

Why get a commission advance?

Selling a home can be a lengthy process. After a buyer chooses a property to purchase and the contract is signed, agents still aren’t paid even though the majority of their work is done. Commissions are only paid out when closing occurs, which generally takes at least 30 days. During this period of waiting for closing, some REALTORS opt for an advanced commission, also known as a commission advance.

Things to consider before applying for a commission advance:

Before getting a commission advance, most REALTORS have questions. First of all, it’s important to note that applying for an advanced commission generally won’t affect your credit score. The process of submitting an application is usually free. After the purchase and sale contract is signed, a REALTOR can tell the advance company about their business, recent signings, and cash needs. For those nervous about the fees, you can typically submit your advance amount, payback date and receive a quick quote on the fees that will be due at closing. An advanced commission comes in handy in the interim of shaking hands on a real estate deal and closing the actual home sale. There are three things to keep in mind when considering advance companies:

• Fee percentage
• Pricing transparency (no hidden fees)
• Funding timeline

What happens if your deal is delayed or falls through?

For a sale that is delayed, some advance companies may offer a grace period. If the real estate sale doesn’t close, that’s generally not a problem. The REALTOR can repay using the commission from the following transaction.

How does repayment work?

One thing to be aware of is that in order to receive a commission advance, most advance companies require either brokers or closing agents to sign off on the transaction. Then once the deal closes, the broker or closing agent will disburse the amount advanced plus the fee to the advance company directly. Then you will receive the reminder of the commission.

Please note: this post discusses the process of getting a traditional commission advance for educational purposes. Advancing your commission with Tongo is generally faster, less expensive, and more flexible than a traditional commission advance. Plus, Tongo does not require brokers to sign off. For more information on Tongo click here.