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How Do Realtors Get Paid? - [Agent Commissions Explained]

How do real estate agents get paid? The quick answer is that both agents get paid from the agreed-upon sales commission negotiated between the seller and the listing agent. The typical commission is between 5% to 6% of the sales price. The commission is divided between the two agents. Real estate commissions are a complicated topic that we'll breakdown into further detail.

Topics Covered in This Article


HOW DO REALTORS GET PAID

There are typically two agents for each real estate transaction:

  • The Listing Agent - Represents the Seller
  • The Buyers Agent - Represents the Buyer

In most transactions, the seller will pay all of the Realtor fees. After the closing, the commission is split between the listing agent and buyer's agent. Listing agents are paid based on their agreement with the home seller. Buyers agents are paid based on the listing agent's advertised percentage in the MLS. Neither agent gets paid until the home sale is finalized.

Here's a quick visual breakdown of how money flows through a real estate transaction to the agents involved. The sales price of $500,000 and the commission percentage of 6% is only used as a reference.

How Do Realtors Get Paid Breakdown


HOW MUCH DO REALTORS CHARGE THE SELLER?

Real estate agent commissions vary from city to city. Where I live, in Colorado Springs, real estate agent fees are generally 6% of the sales price. In Denver, they are 5.8% of the sales price.

According to a recent study, the average real estate commission across the United States is around 5.7%.

It's important to note that there are no set commissions for Realtors.

Every seller has the right to negotiate the commission with their agent. Some homes require very little work to sell, while others may take months of preparation and leg work. Rarely are any two real estate transactions the same. It's up to the seller and the listing agent to agree upon a commission price that is fair to both parties.


WHO PAYS THE REALTOR COMMISSION?

Historically, the seller will pay all of the real estate commissions for both sides of the transaction.

This system has been in place for decades. At the closing table, there will be a breakdown of fees for both the buyer and seller. On the closing statement, it will show the agreed upon real estate commission from the seller's listing agreement. That money is then deducted from the seller's proceeds and delivered to the real estate agents after the home sells.

Often the sales commission is paid to the agent's brokerage and then disbursed to the agent.

If the closer has a "Disbursement Authorization" form permitting the closer to pay the agent directly, they will get paid at closing. Otherwise, the closer will write a check to the agent's brokerage, and then the agent will have their brokerage pay them later. Every real estate brokerage handles this process differently.

Here's an infographic that breaks down the actual disbursement of funds from a real estate transaction.


HOW MUCH DO REAL ESTATE AGENTS PAY THEIR BROKERAGE?

Every agent's business is structured differently.

The 70/30 split between the agent and the real estate brokerage in the model above is an average estimate. If you find your agent through Zillow, or they are working on a team, they may pay 60% or more. Most independent brokers keep 100% of their commission.


HOW MUCH MONEY DO REALTORS MAKE PER YEAR?

The average real estate agent makes around $66,000 per year, while the average income for all occupations is $53,490.

At first glance, it can seem like Realtors make a lot of money. This assumption is one of the primary reasons many people enter the industry. Currently, active real estate licenses are at an all-time high. The truth is, as you see above, their take-home pay is only slightly higher than average.

Realtors are self-employed independent contractors. They have no benefits and carry all of the legal liability of running a small business.

Realtor's expenses can make it extremely difficult to survive in this business. Most people have no idea what the responsibilities of a Realtor entail.

It's an exhausting job with heavy competition and high stakes scenarios. Roughly 80% of real estate agents quit within their first year. Of the ones that make it, 80% will leave in their second year.

Being an agent is more intense than most people realize.


WHY DO REALTORS CHARGE SO MUCH?

On the surface, 5% to 6% of the sales price seems like a lot of money. However, after all the time and expense it takes to sell a home, that commission is quickly diluted.

People unfamiliar with a listing agent's job requirements often feel that they charge too much to sell a home. Most of the work that a Realtor does will happen behind the scenes. They spend numerous hours coordinating with stagers, photographers, and vendors to get the home listed and sold.

When an agent lists a home in a hot market, they can expect to work long hours for the next week. During this time, their days and nights are filled with phone calls, showing schedules, contracts, and more. The seller will see very little of this activity.

An excellent Realtor will absorb the chaos of the transaction and make it as smooth as possible for their client, leaving the impression that their job is easy.

When a listing agent does the job correctly, their clients see the value that they bring. The best listing agents often pay for their Realtor fees by securing the highest possible offer on their listings. This is achieved through a combination of impressive marketing and powerful negotiation strategies.


CAN A LISTING AGENT REPRESENT THE BUYER AND SELLER?

Yes, in most states, a listing agent can represent both the buyer and the seller.

This practice is called "Dual Agency." Although an agent can legally represent both sides of the home sale, it's a dangerous process. Dual agency is illegal in some states, such as Alaska, Kansas, and Oklahoma, because it causes so many problems.

Here's an article that will give you an in-depth look at the issues that can arise when entering into a dual agency real estate transaction:

5 Dangers of Using the Listing Agent as a Homebuyer5 Dangers of Using the Listing Agent in a Dual Agency Transaction


FINAL THOUGHTS

This article covers the most common scenarios in which Realtors get paid.

There are still plenty of other niche topics that we haven't covered, such as Flat-Fee, Part-Time, and Commercial Realtors. If you plan on buying or selling a home and are trying to determine how your Realtor will get paid, this blog should answer most of your questions.

If you have specific questions about different real estate scenarios, feel free to contact me. I have been a licensed Realtor for over ten years, and I enjoy sharing my knowledge to help consumers through the process. 🙂


Andrew Fortune

Hi! I'm Andrew Fortune, the founder of Great Colorado Homes and the creator of much of the content on this website. Thanks for taking the time to read this article. Please feel free to share this article with someone who might benefit from it. I appreciate your time here on this site and am always open to suggestions and ideas from our readers.

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