Posted by Tony Mariotti on Wednesday, August 2, 2017 at 5:24 PM By Tony Mariotti / August 2, 2017 Comment
Realtors get paid on a commission basis, usually 5 to 6 percent of a home’s sales price, which is split between the listing broker and buyer's agent. Fees typically come out of the sellers’ proceeds while buyers generally pay nothing to the agent who represents them.
Honestly, most folks don't put much thought into how real estate agents make money – neither the commission percentages nor from which side of the deal the fees come. Obviously, one must assume that compensation comes from somewhere, or no one would be in business. Office furniture, copy machines, and yard signs don’t pay for themselves. Usually, about the time people start thinking about buying or selling a home, they then start to wonder how real estate agents get paid.
Most buyers are surprised to learn that real estate commissions come from the “listing side” of a deal. Meaning, the fees get worked out between a seller and their listing agent when a house is put up for sale. Then when the home is sold, the seller’s agent splits the listing fee with the buyer’s agent. Thus, buyers aren’t on the hook for any costs, just the sellers. While there are some agents who will represent buyers for a flat fee or work on an hourly basis, brokerages with that kind of business model are few and far between. The most common practice is to follow the age-old commission split between the listing broker and the buyer's representative.
Splits between agents are normally 50/50, so if a listing agent procures a 6% listing fee, the buyer and seller agents will each receive 3% when the deal is done.
Real Estate Commission Example
Here’s an example of how real estate commissions work.
The person selling the home and their listing agent agree to a 6% commission. They sign a listing agreement that spells out the precise fee (as a percentage) along with the duties the listing agent should perform (marketing the property, etc.) on behalf of the seller.
Pictures of the home are taken, a property description is written, and the details of the home are uploaded to the local Multiple Listing Service (MLS). MLSs are essentially a marketplace of home inventory within a specified region. The listing is then syndicated to several portals like REALTOR.com and individual office or agent websites.
Within the local MLS, listings contain extra information that only accessible to member agents. For example, only members of an MLS can see the commission split offered by the listing agent to buyer representative for bringing customers to the table.
In the normal course of the home buying process, local buyers' agents show the listed home to their clients, one of whom decides they want to buy it. An offer is made, via a standard form called a residential purchase agreement, along with an earnest money deposit. Assuming the negotiation process, inspections, and contingencies of the deal are handled expediently, the deal proceeds to the closing stage.
During the closing, the escrow company - a neutral third party - handles all the money. The listing fee is subtracted from the proceeds of the sale, and then the remaining monies are disbursed to the companies for whom the agents work. Wait. The companies? I thought you said the listing fee splits between the listing and buyer agents? Let me explain...
So far, here are the people involved in this example deal:
- Listing broker – represents seller and lists the home on the market
- Buyer’s agent – represents the buyer, gets paid from the listing broker’s commission split
In fact, there are two more entities involved. While agents are technically self-employed, they work under the licenses of their respective brokers – two additional people that get paid (one broker on each side of the deal).
Brokers and agents split the commission, based on a standing agreement between the two, typically between 25% and 50%.
Note: There's another scenario where the buy-side commission is split even further. When a real estate agent refers their client to another real estate agent (typically in another market), the referring agent is paid a referral fee, typically 25% of the buy-side commission.
Real Estate Agent Responsibilities
Listing Agents / Brokers
Legally speaking, only brokers can list homes. So, while you may work with a listing agent and agree to the terms of the deal, their broker legally holds the listing. What's more, all commissions flow through brokers, on both the buy side and sell side of the transaction. This isn’t super important to know, as a consumer, but it’s something most people don’t know and it’s somewhat interesting.
Listing agents represent their customers (sellers). Their typical fee is 5% to 6% to list and market a home. Prices are negotiable and vary by market, based on local custom. For example, homes for sale in Los Angeles are generally listed at a 5% fee. It's illegal for real estate agents and brokers to collude and fix listing fees; a practice that violates of antitrust laws.
Some discount brokers and for sale by owner (FSBO) companies agree to be paid less than the local norm for listing a home. However, low listing fees can be problematic as there is very little commission left over to split with buyers’ agents. What’s more, with less money on the table, discount brokers are less likely to spend what is required for professional real estate photography, advertising and the myriad other expenses needed for properly marketing and selling a home.
So just how are homes marketed? Marketing and advertising budgets are deployed the following ways.
- Print publications like newspapers and specialty publications
- Personal website
- Office website
- International syndication (especially for luxury properties)
- Internet advertising
- Direct mail
- Yard signs
- Premium placement on real estate portals
- Social media
- Yard signs
- Local MLS (annual membership fees)
- Property photographs
- Open houses
- Home staging
As explained above, agents who represent buyers get paid a portion of the proceeds of the listing fee. Buyer’s agents incur marketing and advertising expenses, too; all agents need to spend money on advertising to gain market share, attract customers and increase awareness of their brands.
Agents on both sides of a deal have a fiduciary responsibility to their clients. This means agents must disclose known issues about a property and negotiate in good faith. As such, a buyer's agent must act in the best interests of their customers just as a seller's agent must represent the best interests of their clients. There may be a time when a listing agent also represents a buyer (for the same property), and this is known as dual agency.
Because dual agency makes it difficult to negotiate and represent both parties of a real estate deal, several states prohibit the practice. The State of California allows dual agency, but only if the agent or broker fully discloses it to the buyer and seller. To say the least, this becomes a precarious situation.
Final Thoughts on REALTOR® Pay
If you’re read this far, you now know how agents get paid and how commission splits work. You also know that there are more parties to the transaction than just the two agents representing the buyer and seller. Realtors incur many expenses that eat into those seemingly wonderful profits. To be sure, it's fun and rewarding profession with many responsibilities. Marketing is just the cost of doing business. Lastly, be wary of dual agency situations.
Overall, the national average Realtor commission in 2022 was 5.37 percent, according to data from Clever, an online real estate agent network. In most states, the commission ranged between 5 and 6 percent.What is the most common commission for a realtor? ›
The second thing to know is that the total commission is usually 5-6% as both the Seller's agent and the Buyer's agent need to be paid. They generally split the fee evenly.How do sellers get paid? ›
You can receive funds in the form of a check, or you can get them directly inside your bank through a wire transfer. Both techniques vary in the time it takes for the money to go from the distributor to your bank.What is a dual agent? ›
A dual agent is an individual who acts as both the buyer's and seller's agent in a transaction. It is easy to confuse dual agents with designated agents. But unlike a dual agent, designated agents are two separate individuals representing the buyer or the seller.What is Keller Williams commission split? ›
Keller Williams has a competitive split structure for real estate agents. They offer a 70-30 split. Meaning, 70 percent of the commission will go to the real estate agent and 30 percent will go to the brokerage. In addition, a real estate agent will pay a six percent franchise fee for each transaction up to $3,000.Why do real estate agents make so much money? ›
In short, the average real estate agent income in California can vary, but is higher than most states. Though real estate success is highly dependent on individual effort, California's huge population and high property values in most areas outweigh many other factors that influence the average real estate income.Do you pay a real estate agent if you are the buyer? ›
If you're wondering whether you need a Realtor to buy a home, the short answer is no. You might be hesitating to work with one because you don't want to be saddled with Realtor fees, but typically, buyers don't pay a real estate agent's commission — sellers do.What is Coldwell Banker commission split? ›
Like all real estate agents, Coldwell Banker agents receive a commission on every transaction, either as a buyer's agent or a seller's agent. Sellers will pay 6% of the final sale price of their home in commissions, which are split 50/50 between the buyer's agent and seller's agent.How long does it take to become a real estate agent? ›
Key Takeaways. You can become a real estate agent in about four to six months, depending on where you live. The general steps to earning a license include taking the real estate prelicensing course and licensing exam, and then activating your license, and joining a brokerage.What should you not fix when selling a house? ›
Fixing cosmetic damage
Sure, peeling paint, a weathered back door and scuffed floors may make things look a little run-down, but if you are looking to save some cash on repairs and renovations, you'll rather want the money to be put to good use.
The conveyancer will find the proceeds of the guarantee in his trust account the next morning; and generally speaking, payment is made to the seller, the afternoon following the date upon which transfer is registered.Is it OK to use same realtor as seller? ›
Yes, that's allowed. The situation you're referring to is called transaction brokerage. Transaction brokerage is a service option when your real estate professional represents a buyer client interested in purchasing the property in which you are the seller client.Can buyers and sellers talk to each other? ›
While there may be a time and a place for buyers and sellers to talk directly with each other, those times are far and few in between. It is usually recommended you limit interactions between the parties of a home sale. It is just going to be human nature to start talking.What is fiduciary in real estate? ›
Basic Fiduciary Duty of a Real Estate Agent:
A person having duty, created by his undertaking, to act primarily for another's benefit in matters connected with such undertaking." An agent is a fiduciary. Michelson v. Hamada (1994) 29 Cal.
It usually amounts to selling 8-10 houses per year. Once an agent reaches the set amount of production (cap), they are no longer required to pay the office a split, meaning the agent is at a 100% commission until their anniversary year starts again.What is an 80/20 commission split? ›
80/20 commission split: This common commission split means that 80% of a commission goes to the individual agent, while 20% goes to the brokerage. In addition, many agents on this plan are required to pay significant monthly or per transaction fees in exchange for facilities and limited administrative support.What is a 60/40 commission split? ›
The commission is 6% of the sales price, which is $21,000. This gross amount is split between the seller and buyer's agent, with each representative receiving $10,500. Then, the 60/40 split is enacting for each agent, leaving the broker with 40% ($4,200) and the agent with 60% ($6,300).Do attractive real estate agents make more money? ›
Researchers looked at listing prices, sales prices and the time properties spent on the market before the sale was completed. In general, the research found that the agents who were rated more attractive had listings with higher prices and larger commissions, which comes from higher sales prices for attractive agents.Is being a real estate agent worth it? ›
One of the greatest advantages of becoming a real estate agent is the unlimited income potential. As an agent, there is no limit to how much you earn. That's because real estate agents work for a commission. Typically, the agent walks away with 2.5% - 3% of a property's sale price.Do Realtors make a lot of money? ›
Becoming a real estate agent is one way you can earn a six-figure income, even if you don't have a college degree. However, many people earn less than six figures, and most even quit their work as a real estate agent before they earn their first commission.
Why? Because it's part of the sale price. If the seller did not sign an agreement to pay the commission, the sale price might decline. Whether you're a buyer or a seller, the listing price is not the only number you should consider.Do real estate agents play games? ›
Homeowners are very likely to overvalue their homes themselves (the endowment effect), And some real estate agents play games with the home values they tell sellers.What is the difference between Keller Williams and eXp? ›
Keller Williams is a franchise model. It breaks up countries into regions, which sell franchises or “Market-centers” to individuals looking to open an office. eXp Realty, on the other hand, is one independent brokerage with no territories, regions, or franchise locations.What is Coldwell Bankers cap? ›
Instead, they start their agents at an 80-20 split and have a $15,000 cap. After that, the agent moves to a 100% commission split. But, this Coldwell Banker also only hires experienced real estate agents that have proven results and are high-producers.Is Berkshire Hathaway Good for new agents? ›
Is Berkshire Hathaway good for new agents? While Berkshire Hathaway has a favorable starting commission split of 60/40 for new agents, it can be difficult selling luxury real estate with little to no experience.Can you be a real estate agent part time? ›
Part-time agents are, to a large extent, a thing of the past. These days, practising as an estate agent takes money and a great deal of commitment, given the various educational requirements that will become compulsory by the end of this year.Is the real estate exam hard? ›
Real estate exams are designed to be difficult to pass, so they can weed out people who are not going to be skilled agents. Though the pass rate varies based on the state exam, they hover around 50% across the country. This means only about half of the people who take a state licensing exam pass.How do I become a successful real estate agent? ›
- Find an agent to partner with. ...
- Publicise yourself. ...
- Advertise yourself on online media. ...
- Attend property seminars. ...
- Don't turn down any deal. ...
- Keep in touch with all your clients. ...
- Utilise your coach.
You're not required to give your realtor a gift after closing. In fact, realtors and other real estate agents rarely get gifts at closing. It's not that their clients don't appreciate their efforts, it's that most home sellers and buyers are too busy moving after closing to think about realtor closing gifts.What is the first thing to do after closing? ›
Perhaps the easiest and the first thing to do after closing on a house is check the installed detectors. This will make sure you and your family are safe in your new home by ensuring that the smoke and carbon monoxide testers are functioning.
Put Your Closing Packet In A Safe Place
Closing documents include the promissory note, mortgage, deed and closing disclosure. You should also file away your buyer's agent and purchase agreement, the seller disclosure, title insurance policy and the home inspection report, according to Endpoint.
- Pick a selling strategy.
- Hire an experienced real estate agent.
- Clean everything.
- Depersonalize your home.
- Let the light in.
- Remove excess furniture and clutter.
- Consider staging your home.
- Invest in a professional photographer.
Choose a light, neutral color carpet.
Lighter colored carpet makes a room feel larger and a neutral color is more likely to match existing tile or flooring already installed in the house. Additionally, neutral colored carpet is more likely to go with a potential buyer's furniture.
Should You Fill Holes in Walls When Moving? Again, unless your contract specifies that this must be completed, it's mainly up to you to decide. If there is a “make good of any damage” clause in your contract, then you may be legally expected to fill any holes.Where do you put money when selling a house? ›
- Put It in a Savings Account. ...
- Pay Down Debt. ...
- Increase Your Stock Portfolio. ...
- Invest in Real Estate. ...
- Supplement Your Retirement with Annuities. ...
- Acquire Permanent Life Insurance. ...
- Purchase Long-Term Care Insurance.
It normally takes approximately 8-10 weeks from a property to go from being sale agreed to moving in. Sometime delays occur, particularly where either the buyer or vendor are in a “chain”, e.g. need to sell before they can buy. A closing date is usually agreed at the point a contract is signed.Do you get all the money when you sell a house? ›
However, there are many costs associated with selling your home. Things like Realtor fees are ones that people expect, but there are lots of others you may not think about. The full amount doesn't go right into your pocket — in fact, all in all, you might only see 60 to 70 percent of the home's value when you sell.Is it OK to talk to multiple realtors? ›
There are no regulations or laws stating that buyers cannot use more than one agent or realtor; however, realtors have a code of ethics they follow, and they cannot interfere with another agent's sales. They will not want to work for a client who is not committed to them or who is attempting to use multiple agents.Should you interview more than one Realtor? ›
Is it OK to interview multiple realtors? Yes, definitely. Most real estate agents will expect that you'll be interviewing multiple choices before deciding on one. Interview at least 3 choice to determine who is the best fit for your real estate transaction, whether you're buying or selling.What is loyalty in real estate? ›
Loyalty. A duty of loyalty is one of the most fundamental fiduciary duties owed by an agent to his principal. This duty obligates a real estate broker to act at all times solely in the best interests of his principal to the exclusion of all other interests, including the broker's own self-interest.
Is it illegal to approach a home-seller directly? Just in case you're wondering, there's no legal restriction that stops buyers from approaching a home-seller directly, and asking them about selling their home directly, by-passing an auction or estate agent. The home-seller is not breaking any laws, either.What if a house appraised for more than asking price? ›
What happens if the appraisal comes in above the purchase price of the home? You're in a good situation if this happens. It simply means that you've agreed to pay the seller less than the home's market value. Your mortgage amount does not change because the selling price will not increase to meet the appraisal value.Can buyer and seller talk directly before closing? ›
But the clients themselves are not subject to the Realtor's Code of Ethics, so if they talked to each other, they would not be in violation. As a general rule it certainly is not a good idea for a buyer and seller to talk directly with each other during negotiations.What are the obligations of a real estate agent? ›
To reduce the chances of misleading you, real estate agents must take care to: disclose all information relevant to the price of the property. advertise the selling price based on a reasonable market appraisal or the price the seller has indicated they are likely to accept.What are the 5 fiduciary duties? ›
Specifically, fiduciary duties may include the duties of care, confidentiality, loyalty, obedience, and accounting.What two things must a listing agent disclose to all parties involved in a real estate transactions? ›
A real estate licensee has a duty to disclose to all parties, including their principal and the firm's client all material facts. A material fact about the property is any issue that would affect a seller's willingness to sell and a buyer's willingness to buy.What is a realtor's commission in Alabama? ›
When you sell a home with a realtor in Alabama, your listing agent will typically take home 1.36% of the total sale price. Less than you thought, right? Even though the typical realtor fee in Alabama is 5.44%, that money is actually split between your agent, the buyer's agent, and each of their brokers.What is a realtor's commission in Virginia? ›
According to a survey of Virginia agents, the average real estate commission in Virginia was 5.23% of the sale price in 2021. But this number can also vary.Do buyers pay realtor fees in Wisconsin? ›
In Wisconsin, the home seller typically pays the realtor fees for all agents involved in the sale. This is the standard nationwide. Realtor fees are baked into the price of the home and are paid out of the proceeds when it sells.What percentage of commission do Realtors make selling sunset? ›
The commission is calculated by subtracting a certain percentage (usually ranges from three per cent to six per cent) from the cost of the house they sell. For example, Mary Fitzgerald recently sold a property worth $8,000,000 and earned a commission of $240,000, which is 3 per cent of the cost of the listing.
The total cost to earn your Alabama real estate salesperson's license is $569.25. Your pre-license course with RealEstateU costs $149. The state exam is $77, and your license application is $210. A Fingerprint and Background Check is $48.25.How much does it cost to renew real estate license in Alabama? ›
License Renewal: $185 for Salesperson; $205 for Broker
Alabama real estate license renewal fees vary based on what type of license you're renewing. It costs $185 to renew a salesperson license, and $205 to renew a broker license. Within the year you're up for renewal, the AREC will send out a postcard reminder.
The AL state salesperson exam must be taken in person. PSI operates testing centers in Birmingham, Dothan, Huntsville, Mobile, and Montgomery by appointment only. Refer to the Candidate Handbook for specific addresses.Do you pay a real estate agent if you are the buyer? ›
If you're wondering whether you need a Realtor to buy a home, the short answer is no. You might be hesitating to work with one because you don't want to be saddled with Realtor fees, but typically, buyers don't pay a real estate agent's commission — sellers do.How long does it take to become a real estate agent? ›
Key Takeaways. You can become a real estate agent in about four to six months, depending on where you live. The general steps to earning a license include taking the real estate prelicensing course and licensing exam, and then activating your license, and joining a brokerage.How much do real estate agents make per year? ›
The average real estate agent salary in South Africa is R 540 000 per year or R 277 per hour. Entry-level positions start at R 270 000 per year, while most experienced workers make up to R 9 000 000 per year.Why do I have to pay buyers agent commission? ›
Why? Because it's part of the sale price. If the seller did not sign an agreement to pay the commission, the sale price might decline. Whether you're a buyer or a seller, the listing price is not the only number you should consider.Does the seller pay closing costs in Wisconsin? ›
In Wisconsin, sellers typically pay for the title and closing service fees, owner's title insurance policy, transfer taxes, and recording fees at closing.Who pays transfer tax in Wisconsin? ›
The grantor of real estate must pay a real estate transfer fee at the rate of 30 cents for each $100 of value or fraction thereof on every conveyance not exempted or excluded under state law (sec. 77.22(1), Wis. Stats.).Why is Selling Sunset so popular? ›
From its inception, Netflix's Selling Sunset has won over audiences with its depictions of ultra-expensive Los Angeles real estate and endlessly juicy inter-office drama.
The agents typically make a 3 per cent commission from the cost of each listing, the houses on Selling Sunset are often in the high millions. For example, a home sold at $5 million by one of the Oppenheim Group ladies would bank them a $150,000 commission – not bad!What does Escrow mean Selling Sunset? ›
It's used to protect buyers and sellers, so sellers know that their buyers have the money to purchase the house, and that buyers know they're not being scammed with some fake million-dollar listing. If it falls out of escrow, it means that something went wrong, like the terms of the purchase contract.