Overview of How Real Estate Agents Get Paid
If you’re in the market to purchase a home in the near future, you might be wondering, how exactly is it that real estate agents get paid? Do you pay them yourself? Does the seller pay them? Basically, you want to know how they’re making their money in return for their services.
We’ll get to the fine details when it comes to the answers to these questions. But, to better understand how real estate agents get paid, you must first understand the relationship between an agent and a broker. Both agents and brokers are licensed by the state in which they work. The best way to explain the relationship is that agents are licensed salespeople who work for a designated broker. Agents cannot work independently and are forbidden from being paid a commission directly by consumers.
Real estate commissions are paid entirely to a broker, which is usually a firm (sometimes a single person) that charges a fee or commission for its services during the home buying or selling process. The broker then splits the commission amongst the agent(s) that were involved in the transaction.
What Are the Percentages for Buyer and Seller Agents?
When it comes to the purchase of a home, there are always two sides to the transaction: the buyer and the seller. The same goes for the agent side. There’s usually a selling agent and a buying agent (sometimes the same agent can work with both the buyer and seller in what we call “dual agency”). Typically, the agent fee is paid to the listing broker, which then shares part of it with the buying agent.
For example, on a $100,000 home at a 6% commission rate, the listing broker and buyer agent’s broker would each get half of the commission. The brokers then split the commissions with their agents. In many cases that commission is split where 60% goes to the agent and 40% to the broker.
For instance, on a $100,000 home, the total commission would come out to $6,000. Split evenly between both brokers, the commission would be $3,000 per broker, who would then split that $3,000 with their respective agents, resulting in a $1,800 profit for the agent on a $100,000 home.
What the Process Looks Like
When Does an Agent Get Their Commission?
The process for how real estate agents get paid is fairly straightforward. Agents are only paid when a home sells and don’t actually receive payment until after settlement, so you can be assured that they’ll be working hard for you throughout the entire process from beginning to end. After the home is sold and all the paperwork is taken care of, the broker receives their commission (depending on if they’re splitting with another broker from the selling side), and then the agent receives their negotiated split in commission form.
Who Pays for the Agent’s Services?
Great, so now you’ve found a home you’re ready to close on. Your next logical question is likely who is responsible for paying for the services that the real estate agent provided? This can be negotiated between you and the seller, but it usually falls on the seller to cover this cost, which is why the cost will often be included into the overall price of the home, making it simple and easy.
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