How Do Realtors Get Paid? | BiggerPockets Blog

Most investors have a trusted real estate broker on their real estate team. While you focus on finding deals and cash flow, you may not initially consider how you will pay your landlords and whether those fees are coming out of your pocket.

Realtors are basically middlemen between buyers and sellers, so they are paid on commission when a property closes. But who is responsible for these fees, and how much commission do realtors usually take? This article explains how a realtor’s commission works and when they receive their payment.

What is the difference between a Realtor and a Real Estate Agent?

It is very common for the terms “realtor” and “real estate agent” to be used interchangeably, but there is a difference between the two. Brokers are normal real estate agents and members of the National Association of Realtors. On the other hand, real estate agents are licensed professionals who work in the real estate industry. Both real estate agents and landlords help buyers and sellers buy and sell real estate. However, realtors are only bound by the National Association of Realtors’ Code of Ethics.

An example of how real estate commissions work

To better understand how real estate commissions work, let’s first define what a real estate commission is. Commission payment is a percentage of the home sale price earned by the realtor representing the buyer or seller. Usually, the buyer and listing agents split the total commission.

What is the real estate broker’s commission?

A realtor’s commission is basically their salary for the services they provide to either help a homeowner sell their home or a potential buyer to buy a home. The broker and the client negotiate the commission rate at the beginning of the transaction.

What is the typical commission?

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

However, this is just an industry standard, and the commission rate may vary by region, real estate market, and type of property involved.

What does a realtor’s commission include?

The broker’s commission usually covers the following expenses associated with their work in selling real estate:

  • Broker services: The commission includes compensation for the broker’s services in assisting the buyer or seller in the transaction.
  • Marketing and advertising: The commission also covers 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’s fee, although the payment comes from the money the buyer spent to purchase the property.

In some cases, the seller’s agent may take on the role of both the seller’s agent and the buyer’s agent (this is known as dual agency), which means that they will receive the entire commission. In addition, there may be cases where the seller negotiates a lower commission rate or agrees to cover some of the buyer’s closing costs in lieu of the commission.

The seller and his agent negotiate a commission rate before working together. However, it is also important to remember that without the help of a real estate agent, sellers may have more difficulty marketing their homes, finding qualified buyers, and navigating the complex process of selling real estate.

How do realtors get their payments?

The listing broker is responsible for ensuring that real estate agents get paid once a real estate transaction is completed. Once the transaction is completed and brokerage He receives the commission from the seller’s attorney or closing agent, and the brokerage will distribute the amount to the realtor. The amount the realtor receives is usually divided between the brokerage and the realtor.

There may also be fees or expenses deducted from the broker’s payments, such as advertising costs or association fees. In general, the payment process may vary slightly depending on the specifics of each realtor’s arrangement with their brokerage.

How is the broker’s commission determined?

The negotiation process between the realtor and the client, before anyone signs the listing agreement, determines the commission rate for the realtor. The commission rate can vary depending on the region, the real estate market, and the type of property sold.

When exactly, do brokers get their commission?

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

Does the realtor share their commission with other parties?

Yes, the realtor will share his commission with the other parties involved. At first, the buyer’s realtor and listing agent split the commission. The agreed split can vary depending on several factors, such as the realtor’s experience, performance, and the specific brokerage they work with.

There are other parties besides brokerage That realtor may share their commission with him. For example, if a realtor refers a client to another realtor who eventually closes the deal, the referring realtor may receive a percentage of the commission the closing realtor earned. The details of how and when the commission is split or involved can vary by real estate company.

What happens to commissions when the sale does not end?

Even if the real estate agent works hard, there is no guarantee of a salary. The realtor will not receive a commission if the sale is not closed. The real estate agent only earns payment after the transaction is complete.

Some real estate brokerages have policies that may differ from this general rule. For example, a real estate brokerage may pay a listing agent a reduced commission if the deal fails for reasons beyond its control, such as natural disasters or financing problems.

Other real estate payment forms

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

Do brokers get the base salary?

Brokers do not earn a base salary because they do not have an employer because they are technically self-employed. They only receive payment when they complete a real estate transaction.

What percentage do most real estate agents charge?

Real estate agent fees are a big expense during the sale process, 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% for the sale of a home, usually split between the buyer’s and seller’s agents. However, this percentage can vary.

In some cases, agents may charge a flat fee or a lower percentage for more expensive or less competitive properties. Researching and asking potential agents about their fees and services is important before deciding to work with them.

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

Are you supposed to pay your broker directly?

Normally, you don’t 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 sell a home, the commission will come out of the proceeds from the sale. If you buy a home, the seller pays the real estate agents.

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Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.