Most consumers, whether buying or selling a home, understand that real estate agents are paid a commission. From there, it gets blurry what consumers know and don't know.
How a real estate professional gets compensated is a question often asked. The question is understandable because real estate isn't as straightforward as a typical salesperson.
Real Estate has numerous parties involved in a transaction, so the roles and earnings aren't always crystal clear.
Whether you are a buyer, seller, or potential real estate agent thinking about entering the industry, we will cover what you need to know about commissions and how much a Realtor makes in a year.
Let's dive in.
The commission is a percentage of a home's total sale price for working on a sale. A real estate agent's commission is part of a seller's closing costs. They are often referred to as Realtor fees.
Real Estate commission checks are often paid between a buyer and seller at the closing table.
Commissions are deducted from the seller's proceeds. Most of the time, a specific percentage of the sale price is agreed upon between the listing agent and the homeowner.
Real Estate commission rates are entirely negotiable and vary from place to place. However, the average commission paid throughout the US falls between 5 and 6 percent of the purchase price.
For example, if you were selling a $400,000 home and the commission was 5 percent. The seller would be paying $20,000 in commission.
On most occasions in a real estate transaction, there is a listing agent and a selling agent. Each agent can work for a different brokerage. The broker of each firm will get paid along with the seller's and buyer's agents.
So using the above example, the pie or real estate commission would be split four ways. So many people mistakenly assume that their agent is getting rich. With the commission being split four ways, that's not the case at all.
What a real estate agent makes from a sale will vary from company to company. Each real estate firm will have a system for splitting commissions with its agents. It is usually a tiered system based on production.
When you are a new agent, your split with the brokerage is likely to be no better than a 50/50 split.
As an agent's production increases, so will their split with the house. For example, an agent might see their split jump to a 60/40 split with the house once they have made $50,000 in gross closed commission.
Keep in mind this is just an example and can vary significantly from company to company.
Yes, you can. The best time to negotiate commission with a real estate agent is before you hire them, not after. When you go through the interview process, it is one of the questions that should be asked.
Some real estate agents will be very receptive to negotiating commission fees, and others will not. One of the most common times to ask for a commission break is when you will be buying and selling a home with the same agent.
An intelligent agent will consider making some concessions in this situation. If you're an agent reading this and your policy has been not to, then you're probably making less annually than you would otherwise.
Sometimes in business, there are intelligent decisions, and this is one of them. Having two sales with a little bit smaller commission is better than none at all.
Real Estate agents generally do not get paid unless they close a sale. There are some exceptions, but this is the standard practice.
Once a transaction closes, the commission will be given to the seller's and buyer's agents at closing. The commission check will be made out to the company they work for.
Real Estate agents can not be paid directly. Only brokers can receive real estate commission. The agent will deliver the check to the owner, who will deposit the check and then cut the agent their check.
The check will have the company's name on it made out to the agent. Most of the time, an agent will be paid within a couple of days of the closing. Some real estate companies are on their game and will pay the agent the same day.
They do most of the time; however, there are flat fee real estate brokerages. Flat fee companies charge a few hundred dollars to list your home in the multiple listing service(MLS). A flat fee agent does little else for you.
When a seller chooses to go this route, it makes sense to pay the buyer's agent the going rate for the area.
Now that you understand how commission splits work, you need to take into consideration the check they receive is their gross commission. It is not what they actually make. Real Estate agents have overhead just like every other business.
A real estate agent has numerous business expenses, including signs, marketing material, online and offline advertising, phone, internet, gas for the car, etc. An agent will make a fraction of the amount on the check.
Real estate markets shifting can also impact what an agent makes in a year.
Real Estate can be a lucrative field for the best agents. The average real estate agent, however, makes a decent living. The average falls somewhere from $60,000-100,000 per year, depending on the state in which an agent is located.
That's far from getting rich, as most people assume. Generally speaking, the highest paid agents have been in the business for quite a while and work their tale off. Long hours with nights and weekends are typical.
If you think it's easy and you're going to get licensed and make a killing without hard work, you're dreaming.
Be prepared not to be paid for a while. The average closing time is 45-60 days for a real estate transaction. It might takes months before you even make a sale.