How do Realtors Get Paid? What Every Buyer and Seller Should Know (2023)

Posted by Tony Mariotti on Wednesday, August 2, 2017 at 5:24 PM By Tony Mariotti / August 2, 2017 Comment

How do Realtors Get Paid? What Every Buyer and Seller Should Know (1)

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.

(Video) Real Estate Agent Commissions: How do they work when buying or selling a home?

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.

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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:

  • Seller
  • Listing broker – represents seller and lists the home on the market
  • Buyer
  • 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%.

How do Realtors Get Paid? What Every Buyer and Seller Should Know (2)

(Video) What Buyers and Sellers Should Know About Smart Homes

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.

Advertising

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  • Print publications like newspapers and specialty publications
  • Personal website
  • Office website
  • International syndication (especially for luxury properties)
  • Billboards
  • Internet advertising
  • Direct mail
  • Yard signs
  • Mailers
  • Premium placement on real estate portals
  • Television
  • Social media
  • Directories
  • Telemarketing
  • Flyers
  • Yard signs

Marketing

  • Local MLS (annual membership fees)
  • Property photographs
  • Video
  • Copywriting
  • Open houses
  • Home staging

Buyer’s Agents

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.

Dual Agency

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.

FAQs

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 the lowest commission a realtor will take? ›

What Is the Lowest Commission a Realtor Will Take? Typically, real estate agents charge a 3% commission, which adds up to 6% total commission for the buyer's and seller's agents. However, you can find low commission realtors who charge as little as 1%.

What percent commission do most real estate agents make? ›

What Percentage Do Most Real Estate Agents Charge? Real estate commissions typically range between 4% and 6% of a property's sale price. This amount is further divided between the brokerage and the agent who worked on the sale.

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.

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 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.

How long until you get paid after selling a house? ›

So once you have a 'sold' sign on the board outside your house you still have a way to go before you will see any money. The sale process can take around 6 to 8 weeks and it's only on 'completion' of the sale that the seller will receive the buyer's money and the keys are handed over.

How do you politely ask for commission? ›

How to Ask for a Commission Increase Without Looking Like a Jerk:...
  1. Remember: If you don't ask, you won't receive! ...
  2. Timing is everything. ...
  3. Back it up with sales. ...
  4. Be willing to work for it. ...
  5. Ask for other incentives. ...
  6. Be flexible. ...
  7. Be positive.
26 Jun 2018

How do you negotiate commissions? ›

Jump to a negotiating tip
  1. Evaluate your negotiating leverage.
  2. Find your area's average commission rate.
  3. Shop around for the best value.
  4. Make your house easier to sell.
  5. Create value for the agent.
  6. Offer a full buyer's agent fee.
  7. Work with an up-and-comer.
  8. Sell and buy with the same agent.
23 Aug 2022

How do you negotiate with a listing agent? ›

Real Estate Negotiation Tactics
  1. Show Your Cards Second. ...
  2. Use Inclusions. ...
  3. Connect Personally Through Letter Writing. ...
  4. Use Affirming Language. ...
  5. Facial Expressions and Body Language Will Set the Tone. ...
  6. Start Close to the Market Value. ...
  7. Research Everything. ...
  8. Control Emotions and Stay Positive.
5 Mar 2021

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.

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.

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.

What does capping mean in real estate? ›

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 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).

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.

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.

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 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 the first thing to do after closing? ›

Test Detectors

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.

Should you give your realtor a gift at closing? ›

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.

Whats the first thing to do after closing on a house? ›

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.

What sells a house best? ›

Here are 15 tips to sell your home faster:
  • 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.

What adds most value to a house? ›

What Home Improvements Add the Most Value?
  • Kitchen Improvements. If adding value to your home is the goal, the kitchen is likely the place to start. ...
  • Bathrooms Improvements. Updated bathrooms are key for adding value to your home. ...
  • Lighting Improvements. ...
  • Energy Efficiency Improvements. ...
  • Curb Appeal Improvements.
24 Mar 2020

What color carpet is best for selling a house? ›

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.

When selling a house where does the money go? ›

When selling a house when do you get the deposit? The deposit which is put down by the buyer at exchange won't be received by the seller until completion. Completion is the last part of the 'moving house process', where the full funds are sent over, the seller moves out and the buyer gets the keys and moves in.

Can I keep the money from selling my house? ›

Do you get all the money when you sell your house? Most of the time, no, you won't end up getting to keep all the money you make from selling your house. Selling a property is expensive. You have to pay estate agents, lawyers, and potentially cover some mortgage costs too.

Where do you put money when selling a house? ›

Where Is the Best Place to Put Your Money After 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.

What is a fair commission? ›

However, the typical commission rate for sales starts at about 5%, which usually applies to sales teams that have a generous base pay. The average in sales, though, is usually between 20-30%. What is a good commission rate for sales? Some companies offer as much as 40-50% commission.

What questions should I ask about commission? ›

Five Questions to Clarify Your Commission Plan:
  • Do you understand how and when you get paid? ...
  • When is a deal considered “Booked?” ...
  • When is a deal considered “Earned?” ...
  • When do you get paid? ...
  • Where can I view this in “real time?” ...
  • What is my commissionable value?

How long do art commissions normally take? ›

How long does it take to complete a commissioned painting? Commissions typically take eight (8) weeks but can vary. Completion factors include: my schedule at the time of acceptance; your design vision and its complexity ; revisions (which can extend the completion date); and the final printing process.

Can I negotiate estate agents fees? ›

Estate agent fees typically range from 0.9%-3.6% depending on which estate agents you use, how many are selling your property – and how well you negotiate. So expect your estate agent to aim high with their fees and it's up to you to negotiate them down.

How do you negotiate a sales salary? ›

Before you start negotiating . . .
  1. Get your offer on paper. ...
  2. Research your realistic salary range. ...
  3. Figure out what your job priorities are. ...
  4. Talk up your skills and experience. ...
  5. Bring your W2. ...
  6. Take a collaborative, not combative, tone. ...
  7. Negotiate each term independently.

Are commissions good? ›

MORE MONEY

Professionals working on 100% commission jobs usually earn more than those doing jobs that are paid a base salary. In case of an increase in sales, then the commission agent sells more and therefore gets a higher income on a monthly basis - that can a lot more in comparison with a person that has a wage.

How do you know a buyer is serious? ›

Spotting a Serious Buyer: What to Watch Out For
  1. Are they working with a Realtor? ...
  2. How long have they been house hunting? ...
  3. Do they have financing in place? ...
  4. Are they asking the right questions? ...
  5. How do they behave at an open house? ...
  6. Does their offer appear legitimate? ...
  7. Is the buyer eager to close?

What can I do if I am not happy with my estate agent? ›

If you are not satisfied with the estate agent's response to your complaint, you can complain to their independent complaints body. All estate agents dealing with residential property must belong to a government approved complaints redress scheme.

Should Realtor follow up after showing? ›

Buyers often want to process what they've seen and think it over before making an offer. If one comes through, don't worry, you'll hear about it! “It is reasonable to ask for feedback from your Realtor after the showing, but understand it may take a day or two for the buyer's agent to respond,” Hayward says.

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.

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.

How do Realtors get clients? ›

New realtors can get clients in a number of ways, including buying leads, asking friends and family for recommendations or canvassing their local neighborhood.

Why I quit being a real estate agent? ›

The number one reason people quit real estate is because they expect to see immediate results. People expect a solid month of hard work to result in a good deal and a lot of money, and when it doesn't, they are quick to decide real estate must not be for them. The problem is, real estate is not a get rich quick scheme.

How stressful is being a real estate agent? ›

Let's face it, being a realtor can be pretty stressful. Maybe you're buried in paperwork, you're dealing with yet another demanding phone call at an unreasonable hour, or you're working long hours and weekends to fit everything in.

Are Realtors happy? ›

Real estate agents are remarkably happy people. A whopping 53 percent of agents claim they are “very happy” with their lives, while only 33 percent of Americans can say the same. This means that real estate agents are 60 percent more likely to be very happy with their lives than the average American!

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.

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.

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.

What is the maximum commission a broker can charge? ›

As per the BSE & NSE Bye Laws, a broker cannot charge more than 2.5% brokerage from his clients.

What is typical real estate commission in California? ›

In California, it ranges anywhere from 1-6% of the sales price. The standard is 5-6%, but for high-priced properties (i.e. $1+ million) the commission may be more like 4-5%. The amount is negotiated between the seller and listing agent before a contract is signed.

Does Redfin really only charge 1? ›

Is Redfin really 1% commission? Redfin also heavily advertises a 1% commission — but their standard listing fee is actually 1.5%. To qualify for the lower 1% rate, you'll also need to buy a home through Redfin within 12 months of your home sale.

How much does a realtor make in Florida? ›

Salaries by years of experience in Florida
Years of experiencePer year
1 to 2 years$76,221
3 to 5 years-
6 to 9 years$96,924
More than 10 years$94,960
1 more row
6 days ago

How much is a broker fee usually? ›

Realtors and real estate brokers typically charge around 5% to 6% of the selling price of a house. 2 This is often split between the seller's agent and the buyer's agent. Some discount real estate brokerages may charge a lower rate or instead offer a fixed-fee service. E-Trade.

What is the average broker fee for buying a house? ›

The fees that mortgage brokers charge can vary, but you can expect to pay between 0.3-1% of the loan amount. Some cases are calculated individually, depending on the amount of work involved. This is typically due to the complexity of the case.

What are the three types of brokers? ›

Brokers can be one of three types:
  • Online brokers. A new form of digital investment that interacts with the customer on the internet. ...
  • Discount brokers. A discount broker is a stockbroker who performs buy and sell orders at a reduced commission rate.
  • Full-service brokers.
22 Jan 2022

What are closing costs in California? ›

In California, as a rule of thumb, closing costs amount to approximately 11 percent of the total sales price of a home. They usually include a real estate commission, loan fee, escrow charge, title insurance premium, a pest inspection and the like.

Does buyer pay realtor fees California? ›

How much are realtor fees for a home buyer in California? Home buyers don't pay realtor fees in California. Instead, the seller covers both the listing agent fee and the buyer's agent fee as part of the sale proceeds.

How much do real estate agents make an hour in California? ›

As of Oct 17, 2022, the average annual pay for a Real Estate Agent in California is $93,862 a year. Just in case you need a simple salary calculator, that works out to be approximately $45.13 an hour. This is the equivalent of $1,805/week or $7,821/month.

Do sellers pay closing costs? ›

Closing costs are split up between buyer and seller. While the buyer typically pays for more of the closing costs, the seller will usually have to cover their end of local taxes and municipal fees.

What is the difference between a listing fee and commission? ›

The listing fee is the commission paid to the listing agent for helping you sell your house. The standard brokerage fee in the United States is 6% commission of the selling price. This amount is paid to the listing agent, who then splits it down the middle with the buying agent (realtor representing the buyer).

Is realtor or Redfin more accurate? ›

Where Zillow and Redfin use automated data points to estimate a home's value, a realtor looks at your home in-person and is knowledgeable about your local market. Both use a CMA, but a realtor's comps are going to be more accurate.

Where do Realtors make the most money? ›

10 States Where Real Estate Agents Earn The Most Money
RankState2017 Mean Annual Wage
1New York$102,310
2Texas$72,480
3Hawaii$72,470
4Alaska$71,030
6 more rows
28 Jan 2019

Why do Realtors 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.

Does the seller pay closing costs in Florida? ›

According to the experts at Royal Shell Real Estate, in most Florida real estate transactions the closing costs are split between the buyer and the seller. The seller typically pays 5% to 10% of the home's value in closing costs, while the buyer is responsible for 3% to 5%.

Videos

1. Top 3 Questions Almost EVERY Buyer and Seller Asks
(Theresa Wellman - Realtor, Homeowner Experience)
2. Closing Process for Buyers and Sellers: A Checklist for Real Estate Agents
(Kim Barber)
3. How Does an Agent Get Paid on a SubTo Deal?
(Pace Morby)
4. Real Estate Red Flags Every Buyer and Seller Should Know
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5. Basics of Buying & Selling a Property
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6. How Much Do Realtors Get Paid | Realtor Commissions
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