Real Estate is an industry thought by many to be highly lucrative and high-paying. But have you ever wondered HOW exactly your agent will be paid? You are often approached by agents trying to convince you to list your home with them, or allow them to show you some nice homes to buy. Read more to find out how your agent will be compensated and from where. As a prospective homebuyer, it would be in your best interest to understand this compensation process.
The standard compensation structure for Real Estate Agents is that he/she will be paid commission, based on the selling price of the property you are interested in. While commission rates are not standardized, the process in which they are disbursed is consistent. When a seller signs a listing agreement, that contract is with a brokerage firm. All fees must pass through that brokerage firm. Typically, the seller's and the buyer's agent will be paid by the listing broker after the transaction closes. When a property is listed for sale, the seller's contract spells out the commission rate that will be awarded to a buyer's agent.
Often, many people often try to avoid using real estate professionals so that they may avoid paying commission fees. However, I would warn against this because of some of the potential pitfalls. Unrepresented sellers (for-sale-by-owner properties) often do not have enough information about how to price the home, and sometimes try to raise the price instead of paying a real estate commission. Also, as an unrepresented buyer, it will be much more challenging and difficult for you to determine if the asking price is reasonable and whether or not you are overpaying. Real estate agents have developed insights that go well beyond simply evaluating data through the Multiple Listing Service (MLS). And if you are overpaying, it will create further complications in securing financing, because of potential lender requirements.
Real estate professionals play a vital role in helping you achieve the dream of owning your own home. Beginning with helping you tour and select properties and then guiding you during the negotiation phase and finally seeing it through inspections, financing and closing, the services your Agent will provide you are priceless. This is especially true in today's market, where alternative buying opportunities, including short sales and REOs make it even more difficult to navigate the choppy waters of the home buying market alone.