How do realtors get paid?

Most investors have a trusted Realtor on their real estate team. When you’re focused on finding deals and cash flow, you may not initially think about how realtors get paid and whether that fee comes out of your pocket.

Realtors are essentially intermediaries between buyers and sellers, so they are paid on commission when you close on a property. But who is responsible for that fee, and how much commission do realtors typically charge? This article explains how real estate agent commissions work and when they get paid.

What is the difference between Realtor and Real Estate Agent?

It is very common to use the terms “realtor” and “real estate agent” interchangeably, but there is a difference between the two. Realtors are general real estate agents and members of the National Association of Realtors. On the other hand, real estate agents are licensed professionals working in the real estate industry. Both real estate agents and real estate agents assist buyers and sellers in buying and selling real estate. Even then, only real estate agents follow a code of ethics set forth by the National Association of Realtors.

An example of how real estate commissions work

To better understand how real estate commissions work, let’s first establish what real estate commissions are. The commission payment is a percentage of the home’s sale price that the realtor representing the buyer or seller earns. Typically, the buyer and listing agent split this total commission.

What is a realtor’s commission?

A realtor’s commission is essentially their salary in return for the services they provide in either helping a homeowner sell their home or helping a potential buyer purchase a home. The Realtor and the client negotiate a commission rate at the beginning of the transaction.

What is a simple commission?

The typical commission rate for real estate sales is 6% of the property’s sale price, with both the buyer’s agent and the seller’s agent splitting the commission and receiving 3% each. Let’s say you sell your home for $500,000, and the commission is 6%. In this case, the commission would be $30,000 (6% of $500,000), and the buyer’s and seller’s realtors would each receive $15,000.

However, this is just an industry standard, and commission rates can vary depending on the region, the real estate market, and the type of property involved.

What Is Involved in a Realtor’s Commission?

A realtor’s commission usually covers the following expenses associated with their work on a real estate sale:

• Realtor’s Services: Commission includes compensation for the real estate agent’s services in helping the buyer or seller with the transaction.
• marketing and advertising: The commission also bears the cost of marketing and advertising the property.
• legal fees: The commission includes any legal fees associated with the sale of the property.

Do Sellers Pay Realtor Fees?

Technically the seller is the party that pays the realtor fee, however the payment comes from the money that the buyer spends to buy the property.

In some cases, the seller’s agent may act as both the seller’s agent and the buyer’s agent (this is known as dual agency), meaning they will receive the full commission. Additionally, there may be situations where the seller negotiates a lower commission rate or agrees to cover some of the buyer’s closing costs instead of the commission.

Sellers and their agents negotiate commission rates before working together. However, it’s also important to remember that without the help of a real estate agent, sellers may have a more difficult time marketing their homes, finding qualified buyers, and navigating the complex process of selling a property.

How do realtors get their payment?

The listing broker is responsible for making sure that real estate agents are paid after the real estate transaction is complete. Once the transaction closes and the brokerage receives the commission from the seller’s attorney or closing agent, the brokerage will distribute the payment to the Realtor. The amount the realtor receives is usually split between their brokerage and the realtor.

Fees or expenses may also be deducted from the realtor’s payment, such as advertising costs or association fees. Overall, the payment process can vary slightly depending on the specifics of each Realtor’s arrangement with their brokerage.

How is the commission for the realtor determined?

The negotiation process between the Realtor and the client, prior to the signing of a listing agreement, determines the commission rate for the Realtor. Commission rates can vary depending on the region, the real estate market and the type of property sold.

Exactly, when do realtors get their commission?

Real estate agents get their commission payment after the transaction is completed. The commission is usually paid at the closing of the sale, and it can take up to 30 days for the payment to be processed and distributed to payees.

Does a Realtor share his commission with other parties?

Yes, a Realtor will share his commission with the other parties involved. Initially, the buyer’s realtor and listing agent split the commission. The agreed upon split can vary based on a number of factors, such as the realtor’s experience, performance and the specific brokerage they work with.

There are other parties besides the brokerage with whom a realtor may share his commission. For example, if a Realtor refers a client to another Realtor who eventually closes the transaction, the referring Realtor may receive a percentage of the commission earned by the closing Realtor. The specifics of how and when commission splitting or sharing may occur vary depending on the real estate firm.

What happens to the commission when the sale doesn’t close?

Even though a real estate agent works hard, there is no guarantee of his salary. If the sale does not close, the realtor will not receive the commission. A real estate agent earns payment only after the transaction is completed.

Some real estate brokerage policies may differ from this general rule. For example, a real estate brokerage may pay a lower commission to the listing agent if the transaction falls through for reasons beyond their control, such as a natural disaster or financing issues.

Other Real Estate Pay Models

Not all real estate agents work on a commission basis – there are other real estate payment models besides the commission-based model. Some agents and real estate brokers charge a fixed fee, while others charge an hourly rate or a percentage of the sale price.

Do Realtors Get a Base Salary?

Realtors do not receive a base salary because they do not have an employer because they are technically self-employed. They get paid only when they complete real estate transactions.

What percentage do most real estate agents charge?

Real estate agent fees are a significant expense during a sale, so it’s important to understand what percentage most real estate agents charge.

On average, real estate agents in the United States charge about 6% to sell a home, which is usually split between the buyer’s and seller’s agents. However, this percentage may vary.

In some cases, agents may charge a similar fee or a lower percentage for more expensive or less competitive properties. Before deciding to work with potential agents it is important to research and ask about their fees and services.

Remember, while real estate agent fees can be a significant expense, they can also save you time, money and stress in the long run by helping you through the complicated process of buying or selling a home. So, don’t be afraid to ask questions and find an agent that best suits your needs and budget.

Will You Have to Pay Your Realtor Directly?

Typically, you do not pay your Realtor directly. Instead, the real estate agent’s commission comes from the final sale price of the property. This means that if you are selling the house, the commission will come out of the proceeds of the sale. If you buy the home, the seller pays the real estate agents.

Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.