How Does A Real Estate Agent Get Paid?
This is a question that far too many real estate agents think consumers understand. Unfortunately, too often that is not the case.
Real estate agents are independent contractors which means we work on 100% commission. We do not get paid until the homes we are selling close.
Most agents work for a brokerage company such as RE/MAX, Keller Williams or Coldwell Banker but some may own their own brokerage.
My license is with Benchmark Realty LLC in Franklin TN. I am not an employee of Benchmark. Benchmark Realty receives a portion of my commission for providing me with services I require to operate my business. However, as an independent contractor, I am free to run my business the way I want. The only caveat is I don't violate the National Association of REALTORS® Code of Ethics or Benchmark Realty company policy.
Consumers usually understand real estate agents receive a commission as a listing agent but don't understand how buyer's agents get paid. It's really quite simple.
When a home is listed, the seller agrees to pay the listing agent a commission to sell his home. That commission varies from state to state, anywhere from 5 - 10% of the sale price. That 5 - 10% is then split between the listing agent and the selling agent (buyer's agent). The seller is paying both agents from the commission agreed upon with the listing agent. Neither agent gets paid until all the requirements of the contract have been met and the home closes.
At closing, funds are deducted from the seller's proceeds to pay the two brokerage companies where the listing agent and the selling agent have their license posted.
The brokerage companies will then take their piece of the pie, which can be as much as half of the agent's commission. The brokerages then cut a check to the agent.
Seems simple right? But then who pays the agent to work the open house or the agent who answers my questions on the phone or who may even take me out to see a few homes? No one.
These agents are working events and showing homes in the hopes of meeting new clients. They don't get paid an hourly rate to work open houses or show properties. They hope to sell you a home and collect the commission.
Real estate agents work far more hours than buyers and sellers know to get their clients to the closing table. All of that work goes unpaid if the buyer or seller does not close on the sale of a home.
Can you imagine working 100 hours or more and then not getting paid? It happens all the time to real estate agents.
How? You ask. Mostly, because consumers don't really understand the many risks we take upon ourselves to sell homes.
For example, listing agents have a multitude of expenses to market your home. If your home doesn't sell, they may be out those funds with no chance to recoup their expenses.
Buyer's agents have even more risks than listing agents do. Do you know how many times people will use an agent to take them out to see homes and then cheat the agent out of a commission by using another agent to write the contract?
The buyer's agent is spending hours and gas money to drive prospective buyers around. Remember, he doesn't get paid until he sells a home and it closes. If the buyers decide to use someone else to write the contract, the agent who drove them around gets nothing. Not even a reimbursement for gas expense.
The next time you meet an agent at an open house who is willing to help you find a new home, remember, he doesn't get paid hourly to help you. He gets paid at the end of the transaction which means the purchase of your new home.
The same is true of listing agents. They put lots of money out front to market your home. They don't get any of that money back until your home sells and closes. If your home doesn't sell, they are out those funds.
I can't think of another business who provides this type of service without getting paid for their expenses.