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?
- When do Real Estate Agents get Paid Their Commission?
- Steps of a Real Estate Transaction:
- How Much Are Closing Costs?
- Who Pays Closing Costs?
- What If I Can’t Afford Closing Costs?
- How Much Do Real Estate Agents Make if the House Doesn’t Sell?
- Do Real Estate Agents Get Paid Monthly?
- How to Find a Great Real Estate Agent?
How Do Real Estate Agents Get Paid?
Real estate agents earn a percentage of the sale of the house. This means realtors are commission based.
After the home is sold, the commission payment is sent to the real estate brokerage of the seller. From there, the real estate broker will send the buyer’s brokerage their portion of the commission. Each real estate 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. Yet, oftentimes these fees are rolled into the sales price of the home. Therefore, the buyer ends up paying the real estate commissions.
Then the commission is deducted from the total proceeds from the final sale of the property and the commission is split between the listing agent and the buyer’s agent.
What is the Average Income for a Real Estate Agent?
In the US a real estate agent’s average income is roughly $92,544 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 $102k while the lowest is North Carolina at $65k.
Your location isn’t the only factor determining income level. An agent’s experience, connections, specialty and seniority can all play a role in how much a real estate agent gets paid. 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.
Do Real Estate Agents Get Paid the Entire Commission?
Most realtors work with a. This is a team of agents that help with getting leads and marketing the group as a whole.
Therefore, the real estate agent gets paid only a portion of the commission and the other portion goes to the brokerage after a home is sold.
Each real estate brokerage has a unique contract with its agents. Usually, an agent’s share will be between 15% to 50% of the total commission.
In rare cases, top producing agents can negotiate to receive 100% of the commission paid to the listing brokerage. Then, the agent will only pay their agency a monthly desk-rent fee to continue doing business together.
What is the Average Commission Rate for a Realtor?
The National Association of Realtors
In the United States, the rule of thumb has been to assume a commission rate of 6%. In the 1950’s National Association of Realtors established the standard payment for real estate agents to allow for fairness and equity.
The rate of 6% of the sale price of the home was set because it can adequately pay for the commission of both the listing agent and buyer’s agent. By making the commission a fixed percentage, it is nearly immune to the power of inflation.
While the NAR has advised agents to stand by the 6% commission rate, the average realtor commission rates have varied widely over the years; however, most real estate agents tend to stick close to the advised rate.
Real Estate Commission Percentages
In 2022, the average commission is currently 5.49%. 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 producing agents 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. The commission should be discussed prior to signing a listing agreement.
It is easiest to negotiate a commission rate 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.
Always be respectful when negotiating the commission rate to maintain a good relationship with your agent. Real estate agents often do more than you think to sell your home.
Expect Higher Commission Rates with Experienced 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 listing agreement.
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 real estate brokerage releases the agent’s share of the commission payment.
Because agents get paid mostly by 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.
The home sale is complete on closing day, after all the contracts are signed. The seller will be paid their portion of the sale and the commission will go to the brokerage.
After the real estate brokerage receives the payment, the amount is distributed between the listing agent and buying real estate agents and their brokerages. This is when real estate agents get paid their commission.
Steps of a Real Estate Transaction:
- The client and real estate agent agree upon a commission rate and a listing agreement is signed
- The house is listed, shown, and a contract is accepted
- The listing agent and buying agent settle on a split percentage of the commission
- On closing day, the contracts are signs and funds are released
- The seller receives their portion of the sale. The commissions are split between the selling agent’s brokerage and the buying agent’s brokerage.
- The real estate brokerage keeps their portion of the commission and the real estate agents get paid their portion
How Much Are Closing Costs?
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?
The seller is responsible for the closing costs; however, most sellers incorporate the closing costs into the final price of the home. Therefore, the seller can guarantee that they can pay the closing costs of their home.
Excluding closing costs from the total cost of the home keeps the price of your home low, however, it is a risk for the seller who must be able to pay the entirety of the closing costs.
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; however, the realtor’s commission fees are incorporated into the cost of the home. The result is that the buyer ultimately pays the commission fees.
Whether you are the buyer or the seller, carefully read your contract to determine what fees you will pay. Sometimes these fees are negotiable and can be worked into the final contract.
Negotiations can get complicated, so look for an expert real estate that will advocate for the best outcome for you.
What If I Can’t Afford Closing Costs?
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.
Ultimately, work towards an agreement that will result in your financial stability.
How Much Do Real Estate Agents Make if the House Doesn’t Sell?
If the house doesn’t sell, the listing agent isn’t usually paid. This can depend on your contract between the real estate agent and their contract with their listing broker.
In most cases, the seller would only need to pay cancellation fees for the listing. Rarely, you may need to pay the real estate brokerage a commission.
Do Real Estate Agents Get Paid Monthly?
Real estate agents do not get paid monthly.
The main source of income for real estate agents comes from the 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.
How to Find a Great Real Estate Agent?
When looking for a real estate agent 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.
If you are looking for reliable real estate agents near you, you’re just a few clicks away! Find an expert agent that will advocate for you!