How Does Your Realtor Get Paid | My Move

How Does Your Realtor Get Paid

Author: Dave Goodboy

Deciding to buy or sell a house is a huge financial decision for most people. Knowing exactly where every penny is going is the first part of a solid home ownership financial plan. One area that is often misunderstood by home buyers and sellers is how realtors get paid. Realtors are often the vital intermediaries in real estate transactions. Without the realtor's knowledge, expertise, connections and ability, many doable real estate deals would simply remain uncompleted. This article will explain how real estate agents get paid.

Who Pays the Realtors?

Realtors are paid by the seller. This means that the listing agent takes a commission on the selling price of the house. These real estate commissions can vary and are not set in stone, although in many regions there isn't room for much negotiation. The standard commission rate for a full-service realtor is six percent. This means on a $500,000 home, the realtors will make $30,000; certainly not a bad payday.

Splitting the Commission

It's important, however, to keep in mind that this hypothetical $30,000 commission payout by the seller then gets split multiple ways. The first split is between the listing agent and his/her broker. Generally, the broker will take 50 percent of the commission and give the agent 50 percent. Remember, realtors need to work under a broker who provides oversight, infrastructure and sales support to realtors.

The commission is diluted even more if there is another agent involved. For example, if the buyer has a buyer's agent, the selling agent generally splits the commission again with the buyer's agent for sourcing the buyer. This means that the $15,000 listing agent commission is split again to equal $7,500 for both the listing and buyer's agent. In some cases, agents can refer buyers who they don't represent to a listing which will result in additional splits of the real estate commission pay out.

It is very important to note that these numbers are for example only. In real life, all kinds of different arrangements can be agreed to and realtor commissions can be negotiated. Perhaps the buyer's agent will agree to less, or the listing agent will want to pay out more than 50 percent to keep realtor interest high in the property. In other cases, the broker will offer a higher split to the realtor in an effort to attract talent to their brokerage.

Choosing between Full-Service and Low-Cost

There are no laws and regulations about how much real estate commission can be charged or how it can split among the various realtors involved in the transaction. Recently, a preponderance of "discount brokers" have been popping up around the country. These brokers can be realtors offering a la carte services to help home sellers. The commission paid is often much less than the traditional six percent, but the service is generally not as complete. Each home seller needs to decide if they wish to go the traditional full-service route or try the lower cost alternatives.