- 1 How Does My Realtor Get Paid?
- 2 💵What are real estate commissions?
- 3 🤷♀️What is the difference between a Real Estate Agent and a Real Estate Broker?
- 4 📎What is a Flat Fee Realtor?
- 5 🖩How are commissions determined for selling agents?
- 6 👨💼How does a buyer’s agent get paid?
- 7 👦If real estate agents work for both buyers and sellers, how will they be paid?
- 8 💵Does my realtor get paid if the house doesn’t sell?
- 9 🏠If my house isn’t getting any offers, how is my realtor earning their commission?
- 10 🤔What if I change my mind about selling the house?
- 11 ⁉What if I use a real estate agent for a rental? And other unusual real estate concerns
- 12 🆒Other Also Like:
How Does My Realtor Get Paid?
We know that Realtors work on commission. But how, exactly, does that work? For most buyers and sellers, you could be wondering “How Does My Realtor Get Paid?” Sellers know they pay the commission, but how exactly does that work? Here’s a primer on real estate commissions; although each state is different so ask your realtor for specific details.
💵What are real estate commissions?
If real estate agents don’t sell a home to their client, then they don’t get paid, unlike many other professional services. Commisions are based on the transaction being completed, so even if a home is under contract or in the closing stages until the keys change hands, the realtor won’t receive a commission.
In many cases, the commission is evenly split between the buyer’s agent and the listing (selling) agent, but sometimes the split is negotiated unevenly. For example, a seller could agree to pay a 5.5% commission divided so that the listing agent receives 3% and the buyer’s agent receives 2.5% of the listing.
Commissions are based on the home’s selling price, excluding taxes and closing costs. The average commission in recent years has been about 6 percent of the sales price on a home, so for an example, on a $250,000 property, the 6% commission paid upon the closing of that property will be $15,000.00. This doesn’t mean that the agents walk away with the full $15,0000, however. The Broker of Record receives a part of this, as well. The commission is split at closing between the listing agent’s real estate brokerage and the buyer’s agent’s brokerage. The real estate agents are then paid by their respective brokerages.
🤷♀️What is the difference between a Real Estate Agent and a Real Estate Broker?
Brokers require extra licensing and education over and above that being required for a real estate license. They may or may not be the person you’re actually selling your house through or buying your house from.
Broker of Record: The owner of the real estate company listing the property. Real estate agents typically work for a brokerage.
The real estate broker holds the real estate license of the affiliated agents and maintains their space in the brokerage offices as per the contract with the real estate agent. They collect their part of the commission split from every agent under your brokerage. The real estate agents receive the benefits of being affiliated with a locally or nationally established brokerage, including the marketing and PR efforts from the brokerage.
📎What is a Flat Fee Realtor?
Some realtors aren’t paid by commission, but rather a “flat fee.” These realtors typically have more limited services or work with properties worth a smaller amount. The philosophy beyond a flat fee realtor is to “unbundle” real estate services, or allow a seller to list with more than one realtor (such as an online listing service). Essentially, this works by allowing the home’s seller to control the process, from listing to closing, on Multiple-Listing Sites (MLS) such as Zillow, Trulia, etc. The seller would be responsible for the services typically provided by a traditional realtor, such as marketing the property, finding interested buyers, conducting home tours, and ensuring that all the paperwork and contractual documents are in place. For some sellers wishing to keep as much of the sales price in their own pockets as possible, a flat-fee realtor may be a viable option. However, for many others, the convenience of a dedicated salesperson, the expertise of someone knowledgeable about the market and buyers’ expectations, and the contacts that real estate agents have outweighed the extra money paid for commission. Like many professional services, hiring an expert is worth the cost. For a commissioned-based professional, there is an added incentive to market your home to the best of their ability.
The primary objective of a flat-fee listing is to be featured on the MLS and cut the listing side of the commission completely out by dealing directly with “buyer’s agents.” In most cases, the seller saves approximately half of the traditional commission and maintains the complete freedom to sell on their own. The buyer’s broker is still typically offered a percentage though that could be a flat fee as well. One thing to note is that with flat fee real estate agents, the fee is paid no matter whether the home sells or not.
🖩How are commissions determined for selling agents?
Commissions are typically laid out in the selling contract, a “listing agreement.” This agreement gives exclusive sales access to the property to a brokerage. The listing agreement should state the terms of the commission and describe the services the agent will provide to facilitate the sale. It’s possible to negotiate the terms of a listing agreement, including the size of the commission. Not all agents will be open to negotiation, but in some cases, agents will be willing to take a lower commission to win your business.
Technically, the seller pays the commission to the real estate agents at closing time. It comes out of the sales price of the home. However, sellers and their agents typically take this into account when setting the sales price of the house.
So what does your commission get? The seller’s agent and brokerage house do plenty of “footwork,” listing the house for visibility, marketing the property, and personal time getting the house in front of buyers, including online marketing and advertising. The commission helps cover these costs – the seller doesn’t pay for separate itemized advertisements or marketing packages. You receive expert services from your realtor in exchange for the commissions they earn. An agent may arrange open houses, take photographs of the property, create online listings, post signs and flyers, coordinate inspections, negotiate the contract and engage in many other tasks aimed at helping you sell or buy a home.
👨💼How does a buyer’s agent get paid?
Generally, a listing agreement between the seller and the seller’s listing agent specifies how much the listing brokerage will pay the buying brokerage for bringing a buyer. Unless the buyer has elected to personally compensate their agent, buyer’s agents are paid from their broker who receives the commission from the listing broker. The real estate commission is determined by the seller in the listing agreement. The industry average for buyer’s agents is between 2% and 3% of the sales price.
The amount the buyer’s agent receives depends on how their broker compensates. Some discount brokers pay their buyer’s agents a salary, especially if the brokerage itself does most of the work a traditional agent would do. Despite the reliability a salary provides, most agents work on a commission split, which could vary from 50% of the buyer’s real estate agent commission all the way to 100%.
Since the home seller pays for the real estate agent commission from the amount realized on the sale of the home, technically the seller pays for the buyer’s agent’s commission. However, most sellers bundle commission into their asking price of the home, thus making the buyer pay their agent when they purchase the home. Is your head spinning yet? There’s a bit more to this!
👦If real estate agents work for both buyers and sellers, how will they be paid?
Real Estate Agents are salespeople, licensed to work with both buyers and sellers. Their professional license gives them the flexibility to work for either side of the transaction, and will be paid whether they represent the seller or the buyer. Most people familiar with the housing market know that a buyer’s agent works for the buyer, a listing agent for the seller. There’s a third category, however, that gets a little trickier.
Dual agency is a situation to describe when a real estate agent works with both the buyer and the seller. Dual agents, also known as transaction brokers, work for both the buyer and the seller, combining both roles into one. Buyers might encounter this scenario when they fall in love with a home where the agent they’ve hired to represent them also happens to represent the seller. It’s rare, but it happens, especially in smaller markets. Dual agency can also mean that the buyer and seller have separate agents at the same real estate firm, which most often happens with large brokerages with lots of listings.
As a buyer, keep in mind that your dual agent has a fiduciary obligation to the seller that is just as important as their protection of your own interests. There are some pros to having a dual agent – for instance, it can certainly streamline the home-buying process. From a buyer’s perspective, a potential perk of a dual agent is it can save you on the commission – the dual agent keeps the whole bag. As a result, dual agents may be more open than usual to lowering that commission a bit.
However, bear in mind that staying truly neutral can be difficult. For instance, since an agent’s commission is a percentage of a home’s sales price, it’s inherently in an agent’s best interest to get a high selling price because they’ll make more money. That’s good for the seller, but not so much for the buyer. In addition, staying neutral to both parties means that as both the buyer and the seller, you don’t have an agent in your corner that is truly an advocate just for you. For instance: A listing agent might know his clients are desperate to sell. If the buyer’s agent finds that out, he can inform his clients of their added negotiation power. A dual agent, on the other hand, might be compelled to keep quiet about personal matters.
For your protection, no matter which side of the table you’re sitting on, states that allow this practice require agents by law to inform clients if they’re facing a dual agency scenario. The buying and selling process cannot move forward without all parties’ informed consent. What’s more, both buyers and sellers have the right to opt out and use another agent so both parties have their own representation.
💵Does my realtor get paid if the house doesn’t sell?
Generally not, but check your contract regarding any fees for items like advertising that may be due even if there is not a sale. There may also be a clause that covers the listing agent for a specific period of time if a buyer that was introduced to the property during their listing period buys the home within a 30 to 90-day window after your listing agreement expires. Each state has different regulations, so read your contract and ask a real estate attorney if you have questions. Keep in mind that it takes a lot of effort, time and money to properly market any home to sell. Your listing agent is aware of all of this prior to taking a listing. Remember, it is not always the agent’s fault that a home does not sell; price and market conditions play a large role. There are other things to keep in mind when your contract expires, such as:
🏠If my house isn’t getting any offers, how is my realtor earning their commission?
Some frustrated home sellers may not realize how long the process takes and fail to plan accordingly. Another important factor: Different markets (and prices) move at different speeds, which is something that a savvy real estate agent should make you aware of when negotiating the terms of your listing. Even if your house is tour-ready (and let’s be fair, few are), the timeline breaks down like this: Average time on the market (varies widely with location and price): 2 1/2 to three months; Negotiating after an offer: one week; Preparing to close (assuming a traditional transaction): 30 to 45 days. A smart seller allows a minimum of four to six months to sell, and that’s if you have a home that’s priced right in a good market with one solid offer that makes it to the closing table.
🤔What if I change my mind about selling the house?
Sometimes, the answer is yes, the agent will be paid a fee. Other times, well, let’s look at some clauses from an actual contract to get a sense:
The commission shall be paid at the time of closing of the sale of the property or, in the event a real estate agreement is entered into and Owner defaults, at the time of the default.
If, during the term of this Agreement, Broker obtains an offer to purchase the property at the marketing price, or if Owner enters into an agreement for the sale or exchange of the property at any price and upon terms to which Owner consents, Owner shall pay Broker a commission of 6% of the total purchase price of the sale.
Essentially, if the seller receives an offer at or above asking price, usually they are obligated to sell. For some municipalities, the obligation period is a mere 60-90 days; others, it’s up to a full year. If you aren’t 100 percent sure that you are ready to sell, then you should consult with a real estate attorney. Best case scenario, if you pull your house from a listing, don’t expect that listing agent to be eager to work with you again if you change your mind.
⁉What if I use a real estate agent for a rental? And other unusual real estate concerns
If I use a real estate agent to find a rental home do I pay them? The most common amount charged by Realtors is one month’s rent, but this rate is not set in stone. Sometimes you will have to pay the Realtor a commission to help you find a home, and sometimes the landlord will pay a Realtor to fill a rental. Depending on your location, or which part of a larger city you’re looking for a rental, you might find it better to hire your own realtor to find you a place, especially if rentals are tight or the market is hot.
What if my home is in foreclosure and I sell through a realtor? Sometimes a homeowner will be fortunate enough to find a realtor that is a short-sale expert, and a buyer before the bank officially owns the home. The bank may agree to do a short sale but may also lower the amount of total commission that will be allowed to be paid between the agents. These days, with short sales being so commonplace, and commission reductions being just as common, knowledgeable agents will put this verbiage in any short sale listing: “any reduction in commission will be split 50/50”. This line protects the listing agent.
Can a realtor lower their commission? Sometimes, a realtor will offer to lower a commission, but please note that some agents have more flexibility to negotiate their commission than others. For example, brokerages may have a minimum they require their agents to hold out for. And agents whose companies take a percentage of every commission may be less willing or able to negotiate.
However, there are some occasions where agents will agree to reduce their commission by about a half percentage point, and in some cases a full point, in certain circumstances, including whether the listed home is very high-end or in an area where homes sell quickly. Other times, the agent may be working with the seller on multiple transactions, and so would make more overall than the full commission for just one sale.
🆒Other Also Like:
- Important Things To Know As A First Time Home Buyer
- What Is Involved In A Home Inspection
- How We Help You Sell Your Home