How Does a Real Estate Agent Get Paid?

Don't be embarrassed if you don't know how real estate commissions work. I have had clients who didn't know, even though I had sold their home for them. Most people have misconceptions on how Realtors get paid and how much they actually make.

How Real Estate Commissions Work.

• All real estate agents must work for a licensed real estate broker.
• All real estate fees are paid to the brokerage - not the individual agent.
• Only a licensed real estate broker can pay a real estate commission.
• New agents can receive as little as 40% of the total commission received by the brokerage. Depending on the brokerage, fees may be deducted from that commission including advertising, office expenses, lock boxes, signs.

Listing Agents' Fees

Most brokerages utilize a listing agreement between a seller and agent that gives that agent's broker the right to exclusively market and sell the home. The agreement allows the brokerage to put the listing on the multi listing service (MLS) and in return to offer the cooperating broker a commission for bringing a buyer. The seller agrees to pay a commission to the listing broker who in turn will split this fee with the brokerage that brings a buyer. Generally this fee is a percentage of the sales price.

Cooperating Brokers

Just like life isn't fair, neither are commission splits. For example, a seller could sign a listing agreement for 7% that stipulates the listing broker will receive 4% and will co-broker 3% to the selling broker. It's not always a 50/50 split. Some brokerages will charge 7% and only offer the buyers agent 2%. In a buyer's market, sellers should insist on asking the broker to give a larger percentage to the buyer's broker.

Who Pays the Commission?

Typically, the seller pays the commission. It can be argued that the buyer always pays the commission because it's part of the sales price. The argument goes - if the seller did not sign with a brokerage the sales price might have been lowered. Given this logic, prices on FSBO homes would be lower. History shows this not to be true. People who market their homes without the benefit of a real estate brokerage rarely lower the price to compensate for the lack of realtor fees and often price their homes above the going rate as well.

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