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Real Estate Basics: How are REALTORS® paid?

Did you know that if you are purchasing a home that you typically do not pay your real estate agent?

Working with a REALTOR® can seem confusing, particularly when it comes to how the agent will be paid — and who will cover the cost. While your agent is there to guide you through the real estate process, sometimes it’s difficult to even know what specific questions to ask. Check out the answers to common questions below so that you can approach buying or selling a home with confidence. 

How much are REALTORS® paid?

REALTORS® are paid a commission once a real estate transaction has closed. The commission amount is agreed to in advance between the seller and the listing agent’s brokerage and is typically a percentage of the sales price. Commissions for single family homes usually range between 5-6% of the sales price. That commission is then split between the buyer’s and seller’s agent’s brokerages based on their cooperating agreement between each other. 

Let’s say the commission for the sale of a $200,000 property is set at 6%. The $12,000 commission the listing agent’s brokerage would earn when the property closes would then be split by the agreed upon percentage. 

If you assume that the agent’s brokerages agreed to split the commission equally, then each brokerage would earn $6,000. The title company (or title attorney) handling the closing will then pay that money directly to the real estate brokerages. The agent and their brokerage also have an agreement on how they will split their side of the commission. A brokerage typically keeps a certain percentage of each commission and then pays the agent their agreed to split, which can vary widely from 40% – 100% of the commission. 

Using the above example, if the brokerages split the total commission 50/50 and the listing brokerage pays their listing agent 80% of the brokerage’s commission, then the listing agent would have earned $4,800 on that transaction — before factoring in any advertising expenses the listing agent may have paid to market the property.   

Does the buyer or seller cover the cost of real estate agents?

As with most business transactions, everything is negotiable. Typically, though, the seller covers the cost of both agents’ commissions, so that is an important cost to factor in when considering selling your home. When an area is experiencing a historic seller’s market – like the one we are experiencing along Alabama’s Gulf Coast now – you could see a buyer offer to cover their own agent’s commission to make their offer to buy a property more competitive. Details about agent commission should be outlined in the contract you sign with your agent and in the offer received. 

What do REALTOR® commissions cover?

The services REALTORS® offer vary, but generally, they include helping price and advertising your listing on your area’s multiple listing service (MLS) as well as on social media and other websites with photos and property info. 

Perhaps most importantly, a REALTOR® offers their expertise through the buying or selling process, negotiating the terms of the sale and moving the sale to close. This may be your only real estate transaction or one of a handful, but an experienced REALTOR® handles several a month. Questions are going to come up during your transaction. Having an experienced REALTOR® by your side offers you peace of mind so you can focus on your next move.

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  • Buyer & Seller Tips
Posted on March 3, 2021