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How Do Realtors Get Paid? | Who Pays Agent Commissions?

How Do Realtors Get Paid?

Real estate agents get paid at closing based on a sales commission derived from the sales price of the home. The agent fees are negotiated between the seller and the seller's agent before listing the home, then documented in the listing agreement contract. The seller's agent offers a percentage of the commission to the buyer's agent for bringing the buyer.

The typical sales commission is between 5% to 6% of the home's sales price. The commission is divided between the two agents at the closing table. If the deal doesn't close, the agents do not get paid.

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 real estate commissions for both sides are paid by the seller. The seller will convey how much they agree to pay both agents in their listing agreement. It's common for this amount to be a percentage of the sales price. Fixed-rate and flat-fee commissions are also typical these days.

The listing agent will then advertise the buyer's agent commission in the MLS. The MLS listing acts as an agreement between the seller and buyer agents. This relationship is referred to as a co-op.

After the closing, part of the commission goes to the seller agent and part to the buyer agent.  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?

Real estate agent commissions vary from city to city. In Colorado Springs, real estate agent fees average 6% of the purchase price. In Denver, they average 5.8% of the listing price.

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

It's important to note that there is no set commission split for Realtors. Some listing agreements will have fixed-rate or flat-fee commissions. Realtor fees can be negotiated and structured in many different ways.

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 both parties' fees.


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. It's being challenged in Federal court right now.

The Seller Typically Pays All Realtor FeesAt the closing table, a breakdown of fees for both the buyer and seller will be presented. This is referred to as a Settlement Statement. This statement will show the agreed-upon real estate commission, as well as the closing costs. That money is then deducted from the seller's proceeds and delivered to the real estate agents after the home sells.

The commission is paid to the agent's brokerage and then disbursed to the agent after closing. Some agents have to wait two to three weeks after the closing to get paid.

Sometimes a "Disbursement Authorization" form is issued, permitting the closer to pay the agent directly at closing. Otherwise, the closer will write a check to the agent's brokerage. Then the agent will have their brokerage pay them later after they disburse the funds. Every real estate brokerage handles this process differently.

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HOW MUCH DO REAL ESTATE AGENTS PAY THEIR BROKERAGE?

Every real estate agent's business model is structured differently with their brokerage. Some agents pay a flat-fee per closing, while others may give more than half of their paycheck to their brokerage. Many real estate brokerages offer "caps," allowing agents to keep 100% of their commission after paying in a certain amount.

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 work on a team, they may give up 60% of their commission or more. Most independent real estate brokers keep 100% of their commission.

It's wise to know how much money your Realtor is keeping. The more money they receive, the more motivated they are to help you. The most considerable expense for Realtors is typically the cost of finding new business. Teams that provide leads to their agents charge the most money. Brokerages that do not offer anything charge the least.

Real estate agents who spend a lot of time creating content online to attract local clients can be some of the best Realtors. They tend to avoid the "pay to play" lead generation model, so their fees are lower. They can be extra motivated to earn you favorable reviews online to keep their business healthy. It's also wise to make sure your real estate agent is a member of the National Association of Realtors.


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. Keep in mind that this is the average for all agents combined. In Colorado Springs, there are currently 5,000 agents, and we only have around 1,000 transactions per month. The top producers make well over six-figure salaries.

Realtors split the commission from the saleRealtors are self-employed independent contractors. They have no benefits and carry all of the legal liability of running a small business. 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, their take-home pay is only slightly higher than average. By the time you subtract Realtor expenses from their commissions, there is not much money left. Overhead is the main threat to most real estate agent businesses and for most small businesses.

Realtor's expenses can make it extremely difficult to survive. Most people have no idea what the responsibilities of a Realtor entail. A Realtor's hourly rate can be less than minimum wage on some transactions.

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 and time-consuming 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. An agent will spend many months working with clients weekly before they ever get paid.

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.

Here's an article covering all of the duties that a Realtor has to keep up within their day-to-day job:

What Does A Realtor Do?What does a Realtor do to earn their commission?

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.

A Realtor will absorb the transaction's chaos and make it as smooth as possible for their client. They leave the impression that their job is easy. Their immediate family knows how hard an agent works, though.

When a listing agent does the job correctly, their clients see the value that they bring. The best listing agents often earn their Realtor fees by securing the highest possible offer on their listings. This goal 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 many problems.

Here's an article covering 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


SUMMARY

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 have specific questions about different real estate scenarios, feel free to contact me. I have been a licensed Realtor for over ten years. I run my own real estate brokerage in Colorado Springs, and I enjoy sharing my knowledge with anyone who can benefit from it. 🙂


Andrew Fortune

Hi! 👋 I'm Andrew Fortune, the founder of Great Colorado Homes and the creator of this website. I'm also a Realtor in Colorado Springs. Thank you for taking the time to read this blog post. I appreciate your time spent on this site and am always open to suggestions and ideas from our readers. You can connect with me on Facebook, Instagram, or contact me through this website. I'd love to hear from you. 🙂


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