Real estate agents are essential when buying or selling a property. Selling real estate can be a lucrative career, but it takes hard work and determination to scale your earnings. If money is the main motivation for being a real estate agent then you’ll be utterly disappointed.
Understanding how real estate agents are paid and how they make money before becoming one ensures you go into it fully aware of what to expect as well as how to grow in the profession. Real estate agents have to work under a broker, and it is the brokerage company they work under that pays them.
Understanding commissions in real estate
Every buyer or seller who works with a realtor has to pay a real estate commission upon a successful sale or purchase of a property.
Brokers spend more time in training than real estate agents and take on more responsibility and legal liability. Upon graduation, a broker can start a brokerage firm or work independently. Real estate agents don’t have this option. Realtors have to work “under” a broker.
All the commissions paid by the client are processed through the escrow company and then go directly to a broker who then pays the real estate agent.
How do brokers pay real estate agents?
There isn’t a standard commission division rule book in real estate. New agents go home with 50-75% of the total commission paid at times. That “split” is determined by the marketing and office services the brokerage offers to their agents. It’s also dependent on the experience of the agent. The more experienced the agent is and the less time the broker has to spend teaching, the higher the commission to the realtor.
Depending on the amount of the split that the agent pays, the cost of obtaining sign rentals, advertising, and running the brokerage office may be paid for through the share that the realtor pays with their percentage. Those fees will be taken out of the commission before the real estate agent is paid.
At times, there isn’t much left after these deductions. However, agents who obtain high sales numbers usually go home with a larger commission. Some agents will pay a “desk fee” which can include the actual desk the agent works at, office staff and supplies. Therefore, the commission real estate agents take home will depend on the total amount of sales they bring, the years of experience, and their negotiation powers.
Who pays real estate agents?
That depends on your perspective. The actual commission is deducted from the seller’s home sale proceeds. The buyer is the one who pays for the home. Both buyers and sellers have closing costs. Those fees can be part of the mortgage to reduce the financial burden for the buyer.
Commissions can be structured in two ways:
a) The seller pays the commission to both the buyer and the seller’s realtor. The realtor representing the seller will negotiate the fees with the seller for both themselves and the agent for the buyer.
b) Each party pays their own realtor. There are situations when a seller will only agree to pay their own agent. I remind sellers that people don’t like change when they request that the commission be done this way. They have expectations.
Can real estate agents negotiate their commission?
Often, a real estate agent can negotiate their commission with their brokerage based on the level of experience as well the professional networks he/she can tap into to bring in more business. As a real estate agent, if you can justify the percentage you are asking for, then you should.
When is the real estate agent paid?
Once the sale transaction is closed and the closing costs have also been paid, the brokerages will get the agreed-upon commissions. The offices will process the commissions deducting whatever fees are due from the agent. There are other logistics involved which could delay the payment.
What if the sale doesn’t close on time or doesn’t close at all?
Commissions, typically, are paid upon closing. However, there are times when the transaction is delayed or doesn’t go through. In some situations, the seller may still be required to pay the commissions. even if the deal wasn’t finalized.
As long as the broker had found a buyer for the property, the seller will have to pay the commission if:
● Seller backs out from the deal.
● Seller’s spouse refuses to sign.
● The title deed has errors that cannot be resolved in a reasonable period of time.
● Seller is unable to transfer the property to the buyer within an acceptable duration of
● Commits fraud connected to the transaction.
● Wants to enforce terms and conditions not previously indicated on the listing agreement.
● Mutually agrees with the buyer not to sell.
Are there other payment models?
Most real estate agents get paid on commission. Commissions aren’t the only payment model available. Real estate agents who are employed by brokers can be paid hourly or earn a salary. If the real estate agent is on the payroll he won’t be getting any commission.
Also, in the case where the listing broker finds the buyer on his or her own then he/she doesn’t have to share the commission with a buyer’s real estate agent. Consequently, the listing agent can represent both the buyer and the seller (dual agency) which means he/she only has to share the commission with their broker.
Real estate agents earn a commission for the work done but the percentage is not standard. As a business builds over time, top agents will typically take home a lot of money compared to newbies.
Some agencies do pay buyers and sellers as an incentive to list with them. Compared to the past, generally, agents are no longer recording higher commissions. Working with home buyers takes more effort in a sellers’ market. Many listing agents, representing home sellers, take home more than their counterparts.