How Does My Real Estate Agent Get Paid?

As a Richmond VA Realtor I am often asked how I am compensated for my work and time. I would say the majority of agents are commission based and that commission is USUALLY paid for by the SELLER of the property a BUYER is purchasing. However, every now and again a BUYER could be responsible for the commission of their agent, depending on the situation. Below is a break down of how a real estate agent gets paid:

The Seller Pays the Commission

When a Realtor conducts a listing appointment with a SELLER, the commission is negotiated. For instance, Seller Marty meets with Agent Shannon. They agree on a 6% commission and decide how much of that is going to be shared with the buyer's agent. In many cases, the commission is split, with 3% to go to the listing agent and 3% to go to the buyer's agent. In this case, the BUYER typically has no responsibility in paying any commissions. I say TYPICALLY as in Virginia it is law to have a buyer's agency agreement in place and a different compensation structure may have been agreed upon. Here at the RVA Home Team our buyer agency agreements usually state the commission is to be "3% or the fee represented in the MLS." This means we receive 3% OR whatever the amount is being offered by the listing side. So if the MLS sheet says the buyer's agent is to receive 3%, that's what we get. If it says $200, that's what we get. This brings me to my next breakdown....

The Buyer Pays the Commission

When is the BUYER responsible for paying a commission to their real estate agent? One of the best examples I can use is in the case of a For Sale By Owner (FSBO) situation. For instance, Buyer Kevin is working with Agent Shannon. They discuss the buyer's agreement and agree that the commission will be 3% or the fee represented in the MLS. They tour properties and the BUYER falls in love with a home that is being sold FSBO. If the SELLER is not offering cooperation to the buyer's agent, then the BUYER would be responsible for the commission agreed upon in the buyer's agency agreement. In the example above, that would be 3%. I have yet to have this happen in my experience and every buyer I have worked with has never had to pay any commission as it has always been covered by the Seller. Even if the buyer would choose a home that is FSBO with no compensation being offered to a buyer's agent, we would do our best to either convince the FSBO to pay the commission OR to work that 3% into the deal. 

Do Agents Receive ALL That Money?

Once you are under contract and are sitting at the closing table, you will see something called a HUD1. This is a statement that breaks down all the fees being paid or credited. Many times a buyer or even the seller will see the commission line and think their agent is receiving the full amount. If the property is $250K at a 6% commission ($15K) with it being split evenly between the listing agent and the buyer's agent, then that is $7,500 each. That is a lot of money! However, what the general public doesn't realize is an agent usually has a "split" with the brokerage they work for and they must deduct their expenses.

Breaking Down Your Agents Paycheck 

In the case above, you see your agent receiving $7,500. However, the brokerage your agent works for usually takes a cut and the agent must deduct expenses. PLUS, as an Independent Contractor working under the brokerage, we agents are responsible for deducting our TAXES. Can't forget that the government always gets theirs FIRST! 

Here is an example: listing agent Shannon works for ABC Realty. The "split" the agent has with her brokerage is private, but for illustration purposes we will say this agents split with their brokerage is 60/40. (60% to ABC and 40% to the agent) The $7,500 you see listed on the HUD1 is actually, in this case, $4,500 to the brokerage and $3,000 going to your agent. I know you are probably thinking, that's still not bad and it isn't! The agent now has to pay taxes. Again, for an example we will say taxes are 25%. That $3,000 is now $2,250. THEN, the agent must minus out any expenses, such as marketing for the property. I would estimate those expenses to be approximately $500. (This varies from property to property as photography on a house that is 2,000 square feet is less expensive than a house that is 4,000 square feet.) Minus $500 from $2,250 and you receive: $1,750. 

Now, some properties will take a lot of TIME while others don't take much. I would dare to say in the end it all is a wash as you will have easy transactions and some that are more difficult. In the example above, your agent's take home pay is $1,750 of that $7,500 listed on the HUD1. 

What happens when a transaction falls through? We agents don't get paid a DIME unless other arrangements were made in the buyer's agency or listing agreement. Real estate is a career of high risk and high reward. 

The RVA Home Team Works Hard for YOU!

Here at the RVA Home Team we work hard for YOU! We go above and beyond as we know the key to a successful business is a raving client! We hope this article answers your questions on, "how does my real estate agent get paid?" If you have further questions, we are happy to answer them. Simply contact me, your Richmond VA real estate agent at the RVA Home Team with Keller Williams Realty Richmond West, at 804-248-8207!

*Image courtesy of digital art/freedigitalphotos.net 

 Originally published at: http://www.rvahometeam.com/richmondvanews/how-does-my-real-estate-agent-get-paid/