PHOTO: Just like all other professionals, Realtors get paid for their work. Find out how much they make on a sale. (iStock)
Working with a Realtor or real estate agent can make the homebuying or selling process easier. But they don’t work for free.
Agents get paid through commission, which depends on factors like whether a seller has negotiated the commission, the sale price of the home and if the home sale closes at all. Here’s what to know about how much real estate agents get paid and who does the paying.
How do real estate agents and Realtors® get paid?
In many industries, professionals are paid an annual salary. But real estate agents and Realtors typically get paid by commission. The commission is their compensation for marketing a property with the Multiple Listing Service (MLS) and real estate websites like Zillow, hosting showings and open houses and handling paperwork.
While agents may charge a flat fee in some states, a commission based on the sales price is the most common way for real estate agents and Realtors to get paid.
The median income for real estate agents was $60,370 per year in May 2020, according to the Bureau of Labor Statistics.
You can see by the median earnings that the income range for real estate agents is very wide. How much a real estate agent makes depends on a number of factors, like the part of the country where the agent works, how many transactions they complete, the commission rate and commission split.
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Realtor vs. real estate agent
Even though Realtors and real estate agents are both professionals in the real estate industry, there are key differences between them. A Realtor is a member of the National Association of Realtors® (NAR), the largest trade association in the U. S. They’re expected to uphold the organization’s standards and code of ethics.
A real estate agent is licensed to help people buy, sell and rent real estate. To become one, they must complete required coursework and pass an exam in their state. But they’re not necessarily members of NAR.
Real estate agents can act as a listing agent and work with sellers to list homes, or as a buyer’s agent helping people look for properties. Depending on the state they work in, they may have to continue their education and renew their licenses every few years.
How much are real estate commissions?
Real estate commission rates aren’t set by any federal or state laws. Realtor commissions or realtor fees are usually calculated as a percentage of the home’s purchase price and are often 5% to 6%.
If the real estate commission on a house is 6%, the listing agent won’t collect all of it.
Instead, the listing agent and buyer’s agent will split the money. Each of them will likely take 3%.
Who pays the real estate agent commission?
Real estate commission checks generally come out of the seller’s proceeds on the house sale. So if you’re the buyer, you probably won’t have to pay anything in commissions. But you’ll probably be responsible for your closing costs, which cover expenses like your home appraisal and title.
The listing agent will split the commission with the buyer’s agent, based on their negotiations. In some cases, if you’ve signed a buyer’s agreement with an agent, you may be on the hook for additional fees.
Even though most real estate agents don’t provide buyers with any kind of contract, be sure to read any agreement you receive carefully before you sign it. This can help you avoid hidden fees and surprise charges.
Are real estate agent commissions negotiable?
Depending on your unique situation and the agent you work with, you may be able to negotiate the commission percentage. A listing agent might accept a lower rate if you’ve bought or sold a house with them before. They may also do so in a highly competitive market with many real estate agents competing for your business.
Additionally, if an agent knows your property will be difficult to sell because the market is slow or it simply isn’t what most buyers are looking for, you may not have much luck negotiating. On the flip side, if an agent believes they won’t have to work too hard because your property is updated, move-in ready and likely to sell quickly, they may agree to a lower commission.
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How to negotiate commission with an agent
An agent needs a reason to lower their commission. That’s why you need to do your homework and figure out why you deserve to pay less. Maybe you have plans to assist with their marketing strategy or professional photography.
Or perhaps you can offer them referrals or are willing to sell during a time of year when their business is slower. You may also offer to invest in repairs or improvements that will make their job easier. The more value you can create for the agent, the more likely you are to succeed in your negotiation.
If an agent seems to be inflexible on their commission rate, you don’t have to work with them. You can find many agents, so don’t be afraid to shop around for one that caters to your needs.
How much does a real estate agent make on a home sale?
Let’s say a home sells for $300,000 with a 6% commission. The 6% commission is typically split evenly between the listing agent and buyer’s agent. In this scenario, the full commission of $18,000 would be paid out directly to the brokerage firm, and each agent would then receive $9,000.
The commission will reduce the proceeds the seller gets from the home. Instead of pocketing $300,000, they’d have to deduct $18,000. This is why some people choose to sell their home on their own instead of working with a real estate agent.
Don’t forget agent costs
While the listing agent may get $9,000 in commission, they likely incurred out-of-pocket costs when they listed your home, which will reduce the total amount of money they walk away with. In most cases, these are marketing costs, as agents want to do whatever they can to sell homes for as much as possible.
These marketing costs can include listing your home on the MLS, staging it, taking professional photography and videography, creating brochures for open houses and advertising on social media. Listing agents may also pay for other costs like licenses, association dues and parking.
So, just because your real estate agent earned a commission of $9,000, doesn’t mean they get to keep it all. If they spent $2,000 to market your property, for example, they’d only pocket $7,000.
