Real estate agents are typically paid on a commission basis, which means they are only paid when they successfully sell a property. The commission is a percentage of the final sales price of the home, and it is typically split between the seller's agent and the buyer's agent.
The commission rate is negotiable, but it is typically between 5% and 6% of the sales price. This means that on a $200,000 home, the commission would be between $10,000 and $12,000. That sum is shared by the agents representing the buyer and seller. Each agent further splits their $5,000 to $6,000 share with their own broker. These percentage “splits” vary among agents and brokers. The commission is paid by the seller of the home, and it is typically deducted from the proceeds of the sale.
Real estate agents also earn money through referral fees. If an agent refers a client to another agent, the referring agent may earn a fee if the client buys or sells a home through the other agent.
Here is a step-by-step explanation of how a real estate agent gets paid:
- The seller signs a listing agreement with a real estate agent. This agreement gives the agent the exclusive right to market and sell the home for a certain period of time.
- The agent markets the home to potential buyers. This may involve listing the home on the MLS, holding open houses, and running advertisements.
- If a buyer makes an offer on the home, the agent negotiates the terms of the sale on behalf of the seller.
- Once the buyer and seller have agreed to the terms of the sale, the agent helps to prepare the necessary paperwork and coordinates the closing of the sale.
- After the sale closes, the agent receives a commission from the seller. The commission is typically paid by the seller's broker, who then splits it with the agent.
Real estate agents can make a good living, but it is important to note that they do not get paid unless they successfully sell a property. This means that there is a risk involved in the business, and agents may go through periods of time where they do not earn any money.
However, for successful real estate agents, the rewards can be great. They can earn a good income, and they have the flexibility to set their own hours. They also have the satisfaction of helping people to buy and sell homes, which is a major life event for many people.