Before I go into how a real estate agent gets paid; let me first explain what it is that you are paying the real estate agent to do. A real estate agent is someone who has sat through countless hours of class on real estate and is very knowledgeable of your local real estate market. When buying or selling a home, most people choose to hire a real estate agent to represent them.
When you hire a buyer’s agent, some of the task that they tackle are:
- helping you find a mortgage loan and helping you work with the lender
- showing you homes that meet your criteria
- giving you advice on what to look for in a home
- helping you find a good inspector
- writing up an offer
- negotiating with the selling agent
- guiding you through closing documents
These are just some of the task that a buyer’s agent will assist you with.
When you hire a seller’s agent, some of the task that a seller’s agent tackle are:
- having professional photos of the home taken
- placing your home in the mls so it can be viewed by all the agents to view as well as so it can be syndicated to all the national real estate websites(ex. Trulia, Realtor.com, Zillow)
- have flyers made to take to all the different real estate companies
- hold open houses at your home
- negotiate with buyer’s agent on how much the home will sell for
These are some of the task that a seller’s agent will take care of for you.
So, How Does a Real Estate Agent Get Paid?
So now that we got that out the way, let’s get into how real estate agents get paid…real estate agents can not be paid directly. They are paid from their broker who hold their license. When the agent goes to work for said broker, the broker and the agent come up with an agreement for compensation (Ex. 50/50 split, 60/40 split, 70/30 split).
Once the home is sold the buyer’s broker and seller’s broker will split a commission with the buying and selling agent. The commission is what the seller and the seller’s agent have come to an agreement to pay, usually between 5-8% of the sales price.
Real Life Scenario
Bob wants Johnny from Better Homes and Gardens Real Estate Executive Partners to list his home. Johnny agrees to list Bob home for $200,000 and they have agreed on Bob paying a 6% commission when the home sales. Harry from Second Place Realty has a buyer who loves the house and purchases the home for the full asking price. The full commission amount will be $12,000($200,000 multiplied by 6%) taken out of the sales price at closing and will be split evenly between the two brokers.
Johnny is on a 70/30 split with Better Homes and Gardens Real Estate Executive Partners meaning he will be paid $4,200 when the homes sales. Harry is on a 50/50 split with Second Place Realty meaning he will be paid $3,000 when the home sales.