How Do Realtors Get Paid?

By
Real Estate Agent with Falcon Property Solutions

What is a typical real estate commission?

Many people believe being a Realtor is similar to being a money magnet. Not only is this a misconception, but I don’t know of any other business where a professional can put in countless hours on a transaction and possibly end up empty handed. Let me explain how a Realtor gets paid.

Most Realtors are paid on commission based on sales price of the property. THERE IS NO STANDARD COMMISSION. A real estate professional can only tell you what their company charges to list a property, not what other companies charge. It is against Federal law to “price fix,” so each company has their own policy.

For the purpose of this article, we will use 6% as the commission base and a sales/purchase price of $300,000. Wow! you’re thinking? That Realtor is getting paid a lot to sell a $300,000 house! Unfortunately, that is not the case.

Most Realtors work for a real estate brokerage. When they are hired (usually as an independent contractor), there is an agreement with the brokerage as to what “split” the company will keep and what the Realtor will be paid from the commission. Every firm is different. The Realtor is not paid directly at closing but the money is paid to the brokerage who then pays their Realtor their portion.

Commission splits can be anywhere from 50%/50%, 90% to agent/10% to brokerage, 70% to brokerage/30% to agent. It depends on so many factors, but each agent has their own agreement with their company.

man shuffling papers at desk

Who Pays the Real Estate Agent?

In most situations, the Seller pays the company that lists the property, also known as the Listing Agent. Of the 6% paid to the Listing Agent, 3% of that amount is paid to the Company representing the Buyer. As a general rule, listing side and buying side split whatever commission was agreed upon when Listing Agent took the listing.

Also during the time a contract is entered into between lister and homeowner, it is agreed upon how much Listing Agent will make if there is no other Realtor involved (the Listing Agent working for both the Buyer and Seller). So it is silly to think you’re going to go to the Listing Agent to get a “deal” off the price of the house. That is rarely the case because it’s been agreed to before the house goes on the market. What you really get is a lack of your own representation.

tiny house with red roof money keys

So how do Realtors get paid, actually? In this scenario, each company gets 3% ($9,000). Depending on the split, let’s say the company gets $2,700 (30%) and the agent gets $6,300 (70%). Of that $6,300, the agent (again, an independent contractor) will have to pay income taxes, federal and state self employment taxes, liability insurance, dues and fees, MLS fees, all advertising costs, assistants, etc. It also takes (on average) four to six weeks after you have an accepted offer until closing, a long time to wait to get paid.

A fair amount is taken out of the agent’s check. What it looks like they’re making is not at all what they’re taking home. A Realtor can work for days/weeks/months with a Client, but if something unforeseen happens and there is no closing, then there is no payment at the end. In addition, they can go several months without a sale and have no income, or have several sales in one month. Budgeting is important.

All of this is based on generalities, but that’s a brief overview. Please ask if you would like further information. I’m here to help.

Originally published as How Do Realtors Get Paid? by Mimi Foster

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Selling homes throughout Colorado Springs, Old Colorado City, Manitou Springs, and surrounding areas

 

     

Mimi Foster

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Mimi has received the honor of being voted one of the best Realtors in Colorado Springs five years in a row. With over two decades of experience, she is committed to making the home buying/selling process as painless and enjoyable as possible. Read Full Bio…

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Rainmaker
3,727,982
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Hello Mimi - this is definitely an age-old conversation/question/misconception from those outside the real estate industry(maybe even an active one within the group as well).   Is it that people don't really understand or is it something else? 

Jun 21, 2020 03:26 PM #1
Rainmaker
1,893,716
Jay Markanich
Jay Markanich Real Estate Inspections, LLC - Bristow, VA
Home Inspector - servicing all Northern Virginia

I've heard this a lot and your statement that it "seems" like the realtor is making huge bucks is true.  It depends.  And in the final outcome the split depends on a lot of other factors!

Good post, as always.  Keep on keeping on.

Jun 22, 2020 04:42 AM #2
Ambassador
3,178,537
Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

I've had this conversation with many a potential client.  Sometimes the light bulb goes off over their heads, other times I'm directing them to a FSBO sign.

Jun 22, 2020 08:47 AM #3
Rainmaker
2,817,329
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

This is a good explanation about how Realtors get paid, Mimi.  

Jun 22, 2020 07:04 PM #4
Rainmaker
2,817,329
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

CONGRATULATIONS Mimi, on having this blog FEATURED in the Old Farts Club group!  

Jun 22, 2020 07:05 PM #5
Ambassador
4,293,550
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi Mimi:

This is so well done. I think the majority of consumers have no idea of the true financial picture. And I get that...but don't assume.

Jeff

Jun 24, 2020 08:48 PM #6
Rainer
201,726
Anne Corbin
Long and Foster - Lake Anna - Spotsylvania, VA
Serving Lake Anna & Central Virginia

I don't know who came up with this earnings schedule for realtors. Most professions get paid for their work. Why doesn't a realtor? I worked in law offices for 16 years and they got paid for their time. I find it interesting. I never would have believed all the expenses involved in selling real estate until I became a realtor.

Jun 25, 2020 06:11 AM #7
Rainmaker
281,893
Robby Leviton
Keller Williams Realty - Kirkland, WA
Knowles Team

great explaination of how it works, thanks

Jun 25, 2020 07:28 AM #8
Rainmaker
588,436
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

Clear explaination of how commission works!

Could do a similar blog for buyer side--how agents spend hours/days/months driving to dozens and dozen of homes, possibly writing up several offers that don't get accepted, until finally a deal is struck.

One of the first things I tell new agents is: be prepared to put in many many hours of work with no paycheck!

Jun 25, 2020 12:46 PM #9
Rainer
509,313
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Pro Lifestyle Solutions

Why don't agents ask for retainers, say 1% and balance at COE? You've indicated this practice has been going on since 1920, surely, agents have sought to change this practice, haven't they? If not, why not? Finally, how many agents would like to see a change to getting a retainer, wouldn't you? 

Jun 28, 2020 08:59 PM #10
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