How does a Real Estate Agent get paid?

Have you ever wondered how your Real Estate Agent gets paid? Let’s break it down.

Brokers

First, it's important to understand that all Real Estate Agents have to work under a broker when they get their license. Your Agent may also be a Broker, which means they have both a real estate license AND a broker license. A Broker holds the licenses of all their Agents. This means that when a home is listed, even though you are sitting down with a Real Estate Agent, the listing is actually legally held by the Broker.

How a Real Estate Agent gets paid.

Buyer's Agent vs. Listing Agent

An Agent can represent either side of a real estate transaction. Buyer's Agents represent the buyer and Listing Agents represent the seller. When you hire an Agent to buy a home, you will sign a Buyer-Broker Agreement. And when you hire an Agent to sell your home, you will sign a Listing Agreement. These contracts outline the duties of both the Agent and the Buyer or Seller.

So, there are two sides of the transaction, but which side pays real estate commissions?

Real Estate Commissions

The seller typically pays the real estate commission for both the Listing Agent and the Buyer’s Agent.

Generally, the fee paid by the seller is 6% of the purchase price of the home. 3% goes to the buy side and 3% goes to the sell side. Then, each split is further broken up between the Agent and their Broker. Brokerage splits vary and are outlined in the contract signed when the Agent first joined the brokerage. The split may be 60/40, 70/30, 50/50, etc.

How a Real Estate Agent gets paid.

The seller pays the Broker on each side of the transaction. Then after the Broker takes their percentage of the commission, they will pay the Agent's commission with the remaining amount.

This method of splitting commissions is the most commonly used pay structure, but there are other methods. Some brokerages may charge a flat fee for each transaction, but this is less common. Sometimes the Buyer-Broker Agreement will set a baseline fee. In this type of agreement, the buyer must pay the difference to the Buyer’s Agent if the percentage of the purchase price doesn't reach that baseline amount. So be sure to read your paperwork carefully before you sign it.

Dual Agency

Occasionally the Seller’s Agent will also represent the Buyer in a dual agency with full disclosure. In this case, the Agent collects the full percentage commission of the sale.

Fees May Vary

Be aware that nothing is set in stone. Divisions vary between the buy and sell side and commission splits vary between Agents and Brokers. Sometimes a seller will even try to negotiate the percentage of the fee.

Real Estate Agent Commission

When Agents Receive Their Commission

Typically, Agents aren't paid until a deal closes. At closing, the Title Agent will send the payment paid by the seller to the Broker on each side, who will then pay the Agent their commission split.

Keep in mind that buying and selling a home takes time, and Agents put their time and money into making a transaction happen before they take any money home. Each Agent has their own set of duties that incur expenses out of their own pocket such as gas, marketing costs, insurance, MLS and association dues to name a few. And until a deal makes it to the closing table, payment is never guaranteed.

We hope this has cleared up how your Real Estate Agent is compensated!

Want more homebuying advice? Nestiny is a great place for homebuyer education and to help you gauge how ready you are to buy a home. Journey Homeward allows you to enter all your wants and needs while the True Affordability Tool will break down your budget, showing what you can comfortably afford. You will also receive a Ready Report that will give you a vital head start in the home buying journey, saving you valuable time and money.

Ready To Become A Smarter Homebuyer?

By signing up, you agree to Nestiny terms of use.
Are you a real estate professional? Go here.

You might like :

Ready To Become A Smarter Homebuyer?

By signing up, you agree to Nestiny terms of use.
Are you a real estate professional? Go here.