How Do REALTORS® Get Paid?

Posted by Kent Braaten on Tuesday, February 18th, 2020 at 12:00pm.

In today’s world, it seems like everything costs money. Whether it be a product, service, or activity you’re after, it feels impossible to leave the wallet at home and just take care of things on your own anymore. And because of this feeling, many people are now—rightfully so—more suspicious of hidden fees and charges, especially when it comes to services, like real estate! 

I think if you asked any REALTOR® today what question they are asked most often, each and every one of them would say, “How much does it cost to use a real estate agent?” or “How do you get paid?” And since we aren’t displaying any prices on a menu of services anywhere or asking for payment from the start, it’s easy to see how you might worry about surprise costs popping up throughout the process. But there’s no need to worry! How we get paid is actually not terribly complicated to understand and we’re happy to let you know all of the possible “costs” up front—no hidden fees attached!

How Real Estate Agents Get Paid

Regardless of whether they are working with the buyers, the sellers, or both, REALTORS® make their money through a percentage of a home’s selling price, which they collect as a commission. So, whatever price is paid to purchase a property, they’ll collect a percentage—usually 5-6%—of that as their compensation. This percentage is always discussed in the listing presentation and stated clearly on the listing agreement between the seller and the agent, so sellers will always be made aware of the costs that come with working with a seller’s agent. But, this “cost” will not come as a big, separate bill at the very end that you need to fear. It is, instead, deducted directly from the sale proceeds, similar to how income tax is taken from a paycheck before payday. 

But, you may be asking yourself, how do buyer’s agents get paid? Is there a seperate fee they charge to buyer’s to help them find a home? 

Nope! In the instance where there is both a buyer’s agent and a seller’s agent, then the commission taken from the purchase price of the home is split between the two sides equally. This means that when buying a house, you’re paying absolutely nothing to get the expert assistance of an experienced, local REALTOR® in helping you find a home! Instead, the listing agent (or seller’s agent) is paying them for their cooperation in getting the house sold. 

How REALTOR® Commissions Are Split

While you may only be working directly with your local REALTOR®, only brokers or brokerages can buy or sell a home. Agents then work as the representatives on the brokerage’s behalf to market the property and make the sale. But, since the broker’s assistance was needed to list the property in the first place, technically commissions must split with them also. This is similarly true on the side of a buyer’s agent, as well. So with all these people dipping their hands into the commission pot, how does this actually look at the end?

Well, let’s use an example. A single family detached home is sold for $500,000. A 6% commission is charged on that, meaning the sellers made $470,000 on the sale, while a commission of $30,000 is taken for real estate services. This is split equally between the seller’s agent and the buyer’s agent, with each taking $15,000. Then, the agents must split their $15,000 with their brokers based on a pre-determined “split agreement” between them. This could be a number of ratios, but a pretty common one is 60/40, where the agent collects 60% and the broker collects 40%. So, in the case of a 60/40 split for both agents, their total take-home amount at the end of the day is $9,000—without taxes deducted, of course—while each broker would take $6,000.

So, there you have it! The answer to the most commonly asked question in real estate—how do REALTORS® get paid? Commission is collected on the sale of the house and split between everyone involved, and neither buyers nor sellers ever need to worry about a looming bill of fees for service. Instead, everything is collected out of sight, out of mind so you can just worry about enjoying the thrill of buying or selling a house with the knowledgeable assistance of a local real estate agent who is happy to help!

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