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How do real estate agents get paid? It’s a good question as the job of a real estate agent isn’t as straightforward as, say, a shoe salesperson. It obviously has to do with the sale of a house, but what happens after that? There are a lot of moving pieces and a lot of people involved. Let’s deep dive into the job of a real estate agent and how they make their money.
How Do Real Estate Agents Get Paid?
They earn a percentage of the sale of the house. This means they are commission based.
After the home is sold, the commission payment is sent to the selling agent’s broker. From there, the broker will send the buyer’s brokerage their portion of the commission. Each broker will then give the agents their part minus any fees.
Real estate commissions are part of the closing costs and are also called realtor’s fees.
The seller generally pays the commission or realtor’s fee for both agents. It is typically deducted from the total proceeds from the final sale of the property.
How Much Do Real Estate Agents Make?
In the US a real estate agent’s average income is roughly $82,898 according to ZipRecruiter. This figure can vary greatly between agents based on their location, experience, and their target real estate market.
The state with the highest annual salary is Washington at $92k while the lowest is North Carolina at $60k.
Your location isn’t the only factor determining income level. An agent’s experience, connections, specialty and seniority can all play a role. A good agent will market well and find buyers quickly, allowing them to take on more clients and therefore, make more sales.
What is the average Real Estate Agent’s Commission?
The average real estate agent’s commission in the US is 5.5% of a property’s total sale price. This commission is typically evenly split between the buying and selling agents. As a result, each will earn roughly 2.73% of a home’s sale price. These numbers vary between localities and market conditions.
This means that if a house sells for the average home price in the US of $374,900, the real estate agent’s commission fee would be $21,219.34. Assuming that the total commission is split evenly, each agent would therefore get $10,609.67. But the agent doesn’t usually keep all of that for themselves.
Does My Agent Keep all of the Commission?
Most realtors work with a . This is a team of agents that help with getting leads and marketing the group as a whole.
Each brokerage has a unique contract with its agents. If an agent is in a salary-based contract, they don’t receive the commission directly at all. This is very uncommon though.
In most cases, the agent will take a percentage of the commission paid to the brokerage after the sale of a home. Usually, an agent’s share will be between 15% to 50% of the total commission.
On the other hand, the top-performing agents can sometimes negotiate to receive 100% of the commission paid to the listing brokerage. In these rare cases, the agent will only pay their agency a monthly desk-rent fee to continue doing business together.
Dual Agency
In some cases, the same agent or agency can be representing both parties (buyer and seller) in a transaction. This is known as, dual agency.
Some states, like Colorado, have made dual agency illegal. The 2016 Colorado Statute Article 61, Part 8 says that a dual agency can not be established with any seller, landlord, buyer, or tenant in Colorado.
Other states require that dual agency be disclosed to both parties. This is because there is no need to split the real estate agent commission. This can lead to tempting an agent to misrepresent some material facts about a property.
The National Association of Realtors
In the United States, the rule of thumb has been to assume a commission rate of 6%. This is because the National Association of Realtors set that as the standard in the 1950s.
While the NAR has advised agents to stand by the 6% commission rate, the average realtor commission rates have varied widely over the years.
Why Do Realtors Get 6 Percent?
In the 1950s, the National Association of Realtors suggested that the commission be 6% of the sale price. This is because it can adequately pay for the commission of both the buyer and the seller’s real estate agent. By making commission a fixed percentage, it is nearly immune to the power of inflation.
Real estate agents’ fees are not always 6% though. In some cases, the real estate agent is willing to take a smaller commission to land a larger sale.
Real Estate Commission Percentages
In 2021, the average commission is currently 5.45%. However, in 1992 commissions were as high as 6.04%. 2018 saw commission rates as low as 5.08%.
Real estate agents who are new to the industry might charge you as little as 3-4% of the sales price. Top realtors may charge anywhere between 6-10%. Of course, these top realtors deliver exceptional service to justify the higher commission rate.
Be careful of low realtor commission rates, it might be a red flag regarding the trustworthiness of a real estate agent.
Can I Negotiate My Realtor’s Commission Rate?
Often, yes, you can negotiate with your agent to work out the best commission rate for you to pay. This is easiest to do when you are interviewing multiple agents. But it can happen even if you only interview one.
Negotiating commission fees is easier with some agents, and harder with others. It usually comes down to the level of experience that a real estate agent has.
The agents who are the most negotiable with their commission fees are often the ones with the least experience. This does not mean that the agents are bad. But it does mean you may lose out on the comforts of working with the most experienced realtors available.
Commission Based on Type of Agents
The agents who are the least negotiable on commission rates are often the ones with the most experience. This is because most experienced real estate agents can often help you sell your home for more than 6% of the home’s value, and buy your next home for less than 6% of the listing price.
The most experienced agents should easily be able to justify why they charge the commission rate that they do. So, this is a good question to ask them during your interview with them before signing a contract.
When do Real Estate Agents get Paid Their Commission?
In short, real estate agents get paid their commission when a deal is closed and closing costs are paid, and the agent’s brokerage releases their share of the commission payment.
As I mentioned, the commission (also known as realtor fees) is how sellers are charged for realty services rendered for the sale or purchase of a property.
As a result, realty services include finding interested parties for a buyer’s place, completing paperwork, and most importantly, negotiating the selling and buying prices.
Finalizing Contracts
So, once a deal has been finalized in the form of a contract, the seller releases funds to the real estate agency.
The real estate agent commission is then added to the selling price of the house. This means while the seller is the one who pays the agent, the buyer is likely to foot the cost.
This is because if a property has a selling price of US $500,000 and agents charge 6% in realtor fees, the buyer will purchase the home for $530,000.
Receiving Payment
Once the agency receives the payment, the amount is distributed between the listing and buying real estate agents and their brokerages. This is when real estate agents get paid their commission.
How a normal real estate exchange takes place:
- Firstly, the client and agent finalize a commission rate
- The listing and buying agents settle on a split percentage
- Once the deal between a buyer and seller is finalized, all the necessary documentation is done and funds are released by the buyer to their agent.
- The buying agency splits the amount received into two parts – the seller’s amount and the commission amount
- The seller’s amount gets transferred to their account while the commission amount gets split further
- The brokerage sends the listing agency their share
- Lastly, both agencies keep their share and transfer the real estate agent’s commission to them, effectively completing the transaction.
How Much Do Real Estate Agents Make at Closing?
Essentially, yes. The agent receives payment from their agency after the sale has been closed and the property has been purchased.
Because agents get paid mostly by the commission, they can only access their funds after the buyer has finalized the purchase. This is done to ensure that the agent will hard work for you to close the deal on the purchase.
What Do Closing Costs Include?
The closing costs are normally between 8-10% of the house’s purchase price.
2-4% is paid for title insurance, taxes, fees, deed recording fees, loan origination fees, attorney fees, and discount points. The other roughly 6% makes up the commission which is divided among the real estate agents involved.
There are other smaller fees within the closing cost as well. These should be accounted for in the final contract. If you read the final contract carefully to know what the costs are (and why they are priced accordingly) it will benefit you greatly.
Who Pays Closing Costs?
At the end of the day, the seller is responsible for the closing costs. This is why most sellers incorporate the closing costs into the final price of the home. After that, the seller will guarantee that they can pay the closing costs of their home.
Since closing costs are a part of the contract between seller and buyer, there is room to negotiate terms. However, in some cases, the buyer may agree to pay certain parts of the closing costs.
While excluding closing costs from the cost of the home keeps the price of your home low, it is a risk. This strategy has been applied by sellers who want to keep the price of their homes as low as possible.
As a seller, be careful that you negotiate a deal that helps you pay the closing costs comfortably.
Do Realtors Get Paid by the Buyer?
In one way, yes, but technically no.
The seller pays the closing costs for a home. As a result, the realtor’s fees are then incorporated into the cost of the home.
In most cases, buyers do not need to pay directly for the agent who represents them. Buyers will only pay for the home. After that, the seller pays the closing fees and commission on the purchase of the home.
The home sale commission is split 50/50 between a buyer’s agent and a listing agent. In some cases, an agent may receive more from the commission than the other agent, but this is rare.
What If I Can’t Afford Closing Costs as a Seller?
If you can’t afford closing costs, you can ask your lender or the buyer to help cover some of the cost. On the other hand, you can apply for Down Payment Assistance or a Closing Cost Assistance Grant.
Closing Cost Assistance Grants are specifically available for the purpose of helping low to moderate-income households. To learn more, inquire with a trusted lender for more information.
If a loan or grant is not an option, consider negotiating with your lender to assist you by lowering your down payment on your next house.
The money saved in the down payment should be able to cover your closing costs. As a result, you should expect your mortgage costs to increase.
Don’t Break the Bank
Lastly, if you wish to ask the seller if they are willing to pay part of the closing costs, make it clear that the sale agreement is contingent on meeting this condition.
You may choose to reveal that you do not have the funds for the closing costs and that as a result, have applied for a grant or have spoken with a lender already. However, you’re not required to.
Before facilitating this negotiation, talk to your realtor for advice on how to best move forward.
How Much Do Real Estate Agents Make if the House Doesn’t Sell?
If the house doesn’t sell, the realtor isn’t usually paid. This can depend on your contract between the real estate agent and their contract with their broker.
In most cases, the seller would only need to pay cancellation fees for the listing. On the other hand, you may need to pay the brokerage a commission.
Do Real Estate Agents Get Paid Monthly?
Real estate agents don’t get paid monthly.
The main source of income for real estate agents comes from the 6% commission. The commission is divided among the involved brokerages after the sale.
There are few agencies that offer a base salary, but most real estate agents get paid from the commission received.
Do Real Estate Agents Get Paid Hourly?
There are probably no real estate agents that get paid hourly. It would be a lot less efficient and probably cost more. Real estate agents rely on earnings from commissions instead of salary.
Secondly, it is rare for a company to pay a salary to real estate agents. This means that the amount they earn increases with the number of houses the agent can close.
How to Find a Great Real Estate Agent?
When looking for a Realtor you want to be sure you find someone that you trust. You will be spending a lot of time with this person whether you are buying or selling a home. They need to be someone who understands your wants.
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