How do real estate agents get paid?
Real estate agents are individuals who are licensed to assist clients when buying, selling, or renting real estate property. Unlike other professionals who get paid by the hours they spend on the job; real estate agents will only get paid once a transaction has successfully closed. The agent is then paid by receiving a commission for their services. The commission is calculated based on a percentage of the selling price from the sold property.
A typical real estate agent fee can be as much as 6%. However, the agent will not receive 100% of this fee. To better understand how real estate agents are paid, it would help to first know about the relationship between a broker and an agent.
The broker runs the real estate office. In the real estate industry, the broker has acquired more skills and experience having underwent more education and intensive training. A broker is legally responsible for all real estate transactions he has done himself and/or by his sales agents. He can work independently or with another broker as an associate broker. A broker can also act as an agent in a real estate transaction. All real estate commissions must be paid directly to the broker. It is the brokers responsibility to split the commission as stated in the Broker/Agent contract and with any other agent involved in the transaction. Usually, the broker and the agent split the commission 50/50 or depending on what was agreed in the Broker/Agent contract.
A sales agent works for and under the broker. An agent cannot work independently and is prohibited to accept payments directly from clients. The agent is the person the clients will personally work with throughout their transaction.
Generally, there will be 2 parties involved in a transaction – the listing agent with the listing brokerage and the buyer’s agent with the buyer’s brokerage. Sometimes, the real estate agent can be both the listing and the buyer’s agent depending on the deal.
How much do real estate agents really get paid? The example below will better illustrate the process.
Mr. Client wants to sell his property, for $280,000.00. He meets a real estate agent named Bob, who works for the WiseBuy Realtor. Mr. Client agrees to pay a 6% commission, of the selling price. Bob and Mr Client sign a listing agreement. Bob lists the property on the MLS and puts a “For Sale” sign up in front of the property. Bob is contacted by Agent Sue who has a client that is looking for a house. Agent Sue takes Mrs. Buyer to Mr. Client’s property and shows her the house. Agent Sue submits an offer, on behalf of Mrs. Buyer, for $275,000.00 that was accepted by Mr. Client.
The agreed 6% commission paid by Mr. Client was split 50/50 between the selling agent’s brokerage and the buying agent’s brokerage. Agent Bob’s brokerage received $8,250.00 and Agent Sue’s brokerage received $8,250.00. Since Bob is on a 50/50 commission split with his brokerage WiseBuy Realtor, his total commission is $4,125.00.
The breakdown of commissions earned by Bob and his broker.
- Total commission paid by the seller $16,500.00 (Typically, the seller pays the realtor fee unless otherwise negotiated)
- Total commission paid by the buyer $0.00
- Bob’s commission $4,1250.00
- WiseBuy Realtor brokerage commission $4,1250.00