How Do Realtors Get Paid?

How Do Realtors Get Paid?

Real Estate Agent Responsibilities

Listing Agents / Brokers

Legally speaking, only brokers can list homes. So, while you may work with a listing agent and agree to the terms of the deal, their broker legally holds the listing. What’s more, all commissions flow through brokers, on both the buy side and sell side of the transaction. This isn’t super important to know, as a consumer, but it’s something most people don’t know and it’s somewhat interesting.

Listing agents represent their customers (sellers). Their typical fee is 5% to 6% to list and market a home. Prices are negotiable and vary by market, based on local custom. For example, homes for sale in Los Angeles are generally listed at a 5% fee. It’s illegal for real estate agents and brokers to collude and fix listing fees; a practice that violates of antitrust laws.

Some discount brokers and for sale by owner (FSBO) companies agree to be paid less than the local norm for listing a home. However, low listing fees can be problematic as there is very little commission left over to split with buyers’ agents. What’s more, with less money on the table, discount brokers are less likely to spend what is required for professional photography, advertising and the myriad of other expenses needed for properly marketing and selling a home.

So just how are homes marketed? Marketing and advertising budgets are deployed the following ways.

Advertising

  • Print publications like newspapers and specialty publications
  • Personal website
  • Office website
  • International syndication (especially for luxury properties)
  • Billboards
  • Internet advertising
  • Direct mail
  • Yard signs
  • Mailers
  • Premium placement on real estate portals
  • Television
  • Social media
  • Directories
  • Telemarketing
  • Flyers
  • Yard signs

Marketing

  • Local MLS (annual membership fees)
  • Property photographs
  • Video
  • Copywriting
  • Open houses
  • Home staging

Buyer’s Agents

As explained above, agents who represent buyers get paid a portion of the proceeds of the listing fee. Buyer’s agents incur marketing and advertising expenses, too; all agents need to spend money on advertising to gain market share, attract customers and increase awareness of their brands.

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Why a real estate agent is worth the commission

Having a real estate agent on your side as a buyer can make home shopping less stressful — and you may find better properties, or get a better deal, than you would have on your own.

For sellers, it’s a better way to list your home and bring in more prospective buyers.

And for both sellers and buyers, it helps to have a professional on your side who can help navigate the complexities of such a big real estate transaction.

Also, “buyer’s agents work much harder for their money,” says Buttner. “They often work with a particular buyer for months. They show them multiple houses and make many offers before something sticks.”

For this reason, the buyer’s agent sometimes makes a bit more than the seller’s agent.

“A lot of brokerages that charge less than 6% will still offer the buyer’s agent a full 3%,” Buttner says.

Remember that an agent’s hard work is not rewarded with every client. Those national average salary statistics collected by the BLS and other sources don’t show this unpaid effort.

“Not all transactions result in them getting a commission,” says Ailion. “So the costs associated with transactions that don’t close must be factored into those that do.”

Ailion understands that 6% may seem high. But, he adds, you really get what you pay for.

“Like a good doctor or lawyer, I believe a good agent is worth their fee,” Ailion says. “You’re dealing with likely the most significant asset in your life. So choosing the best representation makes sense.”

What do these fees cover?

While many of today’s buyers often prefer to house hunt on their own, others decide to work with an agent to find a home. For those who choose to work with a traditional buying agent, they’ll find that their agents spend most of their time pulling home listings, driving to tour homes and doing pricing analysis to help them make strong offers.

Once the buyer’s offer is accepted and enters escrow, the agent will spend their time helping coordinate inspections and appraisals, negotiating repairs costs, handling all of the closing paperwork and some light accounting (the agent is responsible for maintaining the financial account used to pay inspectors and appraisers).

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Are Realtors overpaid?

The median income for Realtors was $51,220 in 2020, according to the U.S. Bureau of Labor Statistics. Median income represents the middle of the scale: Half of all Realtors made more, half made less.

Though home sellers may feel that Realtor fees of up to 6 percent are too high, Duffy argues that they’re not high enough. After all, a lot goes into listing a home, such as:

  • Performing a comparative market analysis to establish a competitive price
  • Arranging for photo shoots, sometimes including aerial shots via drone
  • Writing descriptive listing copy to attract interest from other Realtors and potential buyers
  • Providing staging guidance
  • Showing the property multiple times to prospective buyers
  • Hosting open houses on weekends
  • Providing yard signage
  • Making sure listings are populated on all major property search websites
  • Helping the seller review and negotiate buyer offers

When an offer comes in, the listing agent negotiates on behalf of the seller, often presenting one or more counteroffers. And with the volatility of the current market and record low levels of inventory, Realtors frequently deal with multiple potential buyers to help you get the most out of your property.

Average real estate commissions by state

Overall, the national average Realtor commission in 2021 was 5.5 percent, according to data from Clever. In most states, the commission ranged between 5 and 6 percent. But in states like California and New Hampshire, where expensive properties abound, the commission was typically under 5 percent. Find the average commission in your state in the table below:

State Average commission rate
SOURCE: Clever
Alabama 5.61%
Alaska 5.25%
Arizona 5.36%
Arkansas 5.91%
California 4.92%
Colorado 5.50%
Connecticut 5.41%
Delaware 5.75%
Florida 5.38%
Georgia 5.87%
Hawaii 5.25%
Idaho 5.55%
Illinois 5.21%
Indiana 5.87%
Iowa 5.90%
Kansas 6.00%
Kentucky 5.73%
Louisiana 5.19%
Maine 5.45%
Maryland 5.08%
Massachusetts 4.97%
Michigan 5.98%
Minnesota 5.68%
Mississippi 5.54%
Missouri 5.92%
Montana 5.50%
Nebraska 5.29%
Nevada 5.00%
New Hampshire 4.83%
New Jersey 5.18%
New Mexico 6.21%
New York 5.11%
North Carolina 5.45%
North Dakota 6.00%
Ohio 5.84%
Oklahoma 5.89%
Oregon 5.19%
Pennsylvania 5.60%
Rhode Island 5.15%
South Carolina 5.83%
South Dakota 5.00%
Tennessee 5.56%
Texas 5.78%
Utah 5.17%
Vermont 6.00%
Virginia 5.15%
Washington 5.17%
West Virginia 5.54%
Wisconsin 5.93%
Wyoming 5.48%

Other Pay Models

Although it is common for agents to be paid a percentage of the commission, there are cases in which real estate agents who are employed by a broker are paid a salary. Redfin—an online property search site that employs a staff of full-service real estate agents who are paid a salary plus bonus based on customer satisfaction ratings the company collects—is one example.

What do real estate agents and Realtors do?

Whether acting on behalf of sellers or buyers, the duty of a real estate professional is to maximize the benefits his or her client gets from the home transaction.

Agents do this by having:

  • An intimate knowledge of the local housing market, including expertise in appraisal
  • Negotiating skills to secure the best or optimum price for the client
  • Local contacts in the marketplace who can help with the rapid acquisition or sale of a home
  • A close knowledge of the legal and mortgage processes involved
  • Troubleshooting skills that keep a transaction on track when issues arise
  • Interpersonal skills that allow clients to feel comfortable and in control throughout the process

If you pick a good one, your agent can be highly valuable.

Ideally, your agent will have several years of experience in your local real estate market. But new agents can offer a lot of skills and insights, too.

Negotiating other fees

If you’re trying to save money, consider negotiating other fees before closing. Your Closing Disclosure provides a breakdown of the fees you’re responsible for as the buyer. These include credit report fees, loan application and originations fees, and broker fees, among others.

Additionally, buyers and sellers may encounter additional fees based on the city or state where the transaction takes place. In San Francisco, for example, Navarro notes that there is a city transfer tax that is split equally between the buyer and the seller.

However, the way fees are split between buyer and seller can also vary. Navarro points out that in Santa Clara county it’s customary for the seller to pay title and escrow fees for the buyer, but in San Francisco and most other Bay Area counties the buyer covers those costs. Real estate agents can help make sure you’re aware of any relevant state or city fees and they can offer insight on local procedures.

Related links

How Much Do Realtor Fees REALLY Cost? Now that you know how realtor fees work, find out how much you can expect to pay whether you’re buying or selling, the average commission rates by state, and the services that realtor fees typically cover.

Top 10 Low Commission Agents + Companies: If you’re looking for savings and service, a low commission company might be right for you. Compare top low commission companies to find out which one is right for you!

How Much Do Real Estate Agents Make? The average commission rate is 6%, but how much of that does your agent really walk away with? Find out how much realtors really make in commissions, how agent fees get split, and how much agents make annually.

The Bottom Line

Real estate agents are paid on commission. The percentage is based on the property’s selling price. Normally commissions are split between the buyer’s agent and broker and the seller’s agent and broker. While the seller pays the commission, it’s usually reflected in the price paid by the buyer.

Realtor Fees FAQ: Everything You Need To Know

Whether you are a first-time homebuyer or a seasoned real estate investor, it is crucial to know about all the costs of purchasing a property. That’s where Realtor fees come in. Read through the following commonly asked questions and make sure you know what to expect when working with a Realtor.

How Does Realtor Commission Work?

Realtor commission works the same as a Realtor fee. To be clear, Realtor fees and Realtor commissions are synonymous with each other. A Realtor commission is a percentage of the sales price and will be applied accordingly. However, it is quite common for the buyer’s agent and the seller’s agent to receive about half of the commission each. If the same agent represents both sides of a transaction, there’s a chance they will lower their commission. Every detail about a real estate agent’s commission and any transaction fees should be outlined in the contract you sign when hiring an agent. This is referred to as a listing agreement. It specifies how long the agent will represent you, typically between 90 to 120 days.

Usually, it is the landlord’s responsibility to pay rental agent fees. However, this is not required. In places like New York, tenants will pay the rental agent’s commission from time to time. The commission can also be 10% – 20% higher if a vacant lot is sold. This is because selling land is often more difficult.

How Much Does A Realtor Cost On Average?

On average, real estate agents and Realtors will charge somewhere between five and six percent of the sales price. There is no universal amount for how much an agent will make on a home sale. It is, however, possible to calculate how much a Realtor fee translates to in the average home sale.

According to Zillow, the median price of homes that have sold in the United States rests at $230,000. So if you want to understand how much the average Realtor makes in fees on the average home sales price, take six percent of $230,000, which is $13,800. That means the average Realtor fee is somewhere around $13,800. But remember, the fee is typically divided in two to pay the agents representing each side of the deal.

How Much Does A Realtor Charge In Fees?

As previously mentioned, Realtors typically charge a percentage of the final sale price in fees. However, this Realtor fee amount only equals the commission they will make from a given deal. There are still fees that can be incurred while the property is on the market. Depending on whether you are buying or selling, these can be important to look for. A few examples of Realtor fees, aside from commission, are as follows:

  • Home Inspection: Realtors will typically request a home inspection and appraisal while the property is still on the market. This is to ensure the correct sales price and make sure there are no undiscovered issues with the property. Home inspection fees vary but can range anywhere from $200 to $400, depending on the market.

  • Photography: While not all sellers opt for professional stagings, they should at the very least secure professional photographs for the listing. Many experienced Realtors will already have a professional connection when they take on a listing, and fees can vary accordingly. One thing is for certain: no matter what market your property is in, professional listing photographs will almost always pay for themselves.

  • Staging: Staging is one of the best ways to hook potential buyers, but it does come at a price. Realtors will typically work with professional stagers, ranging from $400 to $500 a room per month. Again, these fees vary depending on the market and property size.

  • Closing Costs: Technically speaking, closing costs are not included as part of Realtor fees. They are required costs at the end of a transaction. Therefore, it is important to keep them in mind. Closing costs cover loan fees, title company fees, insurance, taxes, surveyor costs, recording of the real estate deed, and more. Closing costs will vary with each unique home sale or purchase and range from 2% to 7% of the purchase price.

How Do You Calculate Realtor Fees?

To calculate Realtor fees, you must know three things: the sales price of a home, the number of agents in a respective deal, and the percentage they charge for their representation. Once you have those three numbers, calculating your Realtor fees is as simple as multiplying and dividing a few numbers.

Start by taking the sales price and multiplying it by the percentage the Realtor is charging. For example, if a home sells for $500,000, multiply it by the percentage the agent is charging. If they are charging the average commission I already spoke of, the equation will look like this: ($500,000 x 0.06), which gives you $30,000. Then, take that $30,000 and divide it by the number of agents representing the deal.

Are Realtor Fees Included In Closing Costs?

Realtor fees and commissions are not included in a home’s closing costs. Whereas commissions are strictly for the representing agents, closing costs result from several miscellaneous fees (unrelated to the agents). For the most part, closing costs include, but are not limited to things like:

  • Loan processing: Lenders will charge for processing, credit checks, and other administrative duties when approving a loan. The exact amounts based on the financial institution, and can sometimes even be lumped together in one origination fee.

  • Title company fees: Title fees typically make up the bulk of closing costs. These fees cover the title search, title insurance, and some settlement services.

  • Surveyor costs: In many cases, a surveyor is necessary to check the boundaries and property lines surrounding a home.

  • Deed recording: Many local governments will charge recording fees after the sale of a property in order to update county records. On average, recording fees are around $100.

  • Insurance: Some lenders require homeowners to prepay one year of insurance costs at the time of closing. There may also be fees associated with private mortgage insurance, depending on the details of the loan.

Not unlike the Realtor fees, however, closing costs will depend greatly on the sales price of the home in question. As a result, closing costs also tend to span a bigger spectrum, generally ranging from two to seven percent of the sales price.

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Are Realtor Fees Included In A Mortgage?

You will be happy to know that Realtor fees (or commissions) are not included in the mortgage. If, for nothing else, it’s the seller that’s going to be paying the fees. Remember, more often than not, it’s the seller’s responsibility to compensate the Realtor or real estate agent.

Are Realtor Fees Negotiable?

As with almost everything else in a real estate transaction, it is entirely possible to negotiate Realtor fees. The law states that said fees should be negotiable. Whether or not you can come up with a compromise, however, is another story. Just know this, it is possible to negotiate Realtor fees. Keep in mind, you typically get what you pay for. So while it is possible to negotiate with a Realtor, you may not necessarily want to.

What is Dual Agency?

Dual Agency is when the real estate agent or Realtor represents both the buyer and seller in a given transaction. In this case, the agent would be tasked with balancing the interests of both parties. As you can imagine, a dual agency can be tricky. That’s why several states have even made this practice illegal. In states where dual agency is allowed, agents must tell both buyer and seller that they represent both sides of the transaction.

Many home buyers and investors will often opt against dual agency situations to prioritize their best interests. Some believe a dual agent setup could reduce the overall Realtor fees (they will not be split between two agents). It is entirely up to you to decide whether to work with a dual agent or not when you encounter the option. While this situation is not particularly common, it does happen.

Who Pays The Rental Agent’s Commission?

Depending on the rental agreement, the landlord or tenant will pay the rental agent’s commission. To back up for a moment: a rental agent is similar to a real estate agent, except rather than working with buyers and sellers, they work between landlords and tenants. A rental agent’s commission will typically be between one month’s rent and 15 percent of the annual rent. Depending on the area, these fees will normally be paid for differently. For example, in larger cities, renters are often responsible for rental agent commissions. No matter which side of the transaction you are on, make sure you know who is responsible for the fees before deciding to work with a rental agent.

What Is A Commission Split?

Realtors don’t get to keep their full commission if they work for a brokerage. Usually, they’ll split their commission equally with their broker, but other split structures are possible. For example, an agent might get to keep more of the commission as they gain tenure at their brokerage. These splits help cover overhead costs for running the agency, such as advertising, office expenses, and equipment.

What If The Seller Refuses To Pay?

If a seller refuses to pay Realtor fees, then the responsibility will fall on the buyer; however, this rarely happens without other concessions. Consider possible reasons why a seller would attempt to avoid Realtor fees. Are they listing the property without a real estate agent? Is the sale price under market value? Are any repairs being taken care of before closing? More often than not, if a seller tries to negotiate with the buyer to pay Realtor fees, there will be a reason. Remember that the home buying process is full of negotiations, and while rare, you may encounter situations such as this.

How Do You Save Money On Realtor Fees?

How Do You Save Money On Realtor Fees?

The best way to avoid Realtor fees is to act as the buyer in a transaction. As I already alluded to, the sellers typically pay the fees at the closing table. However, if you can’t avoid the fees, perhaps you can lower them a little. If that sounds like something you would like to try, may I recommend taking the following actions with your Realtor:

  • Discuss everything upfront and transparently: It is always a good idea to know what you can expect when buying something before you spend money on it. For example, it is important to know if you can pick your seat (or if that will cost extra) when buying a plane ticket. The same logic applies to working with a Realtor. Ask what their services are before you start working with them; that way, you know exactly how they can help you.

  • Determine if their fee is negotiable in the first place: As you choose an agent to work with, do not be afraid to ask if their fees are negotiable. Realtors and agents will often let you know right away what to expect when working with them. Remember to pay attention to their demeanor when asking, though, as their answer may provide insight into how it will be to work with them on the property.

  • Offer a competitive rate for the other agent in a deal: It can be difficult to find a balance between saving money on Realtor fees and trying to sell your home quickly. To do so, always make sure the commission you are offering is competitive in your market area. Sellers can run into problems by offering a low commission for the buyer’s agent, which can sometimes result in fewer agents showing your property.

  • Let agents know you are shopping around: There is no rule stating that you have to work with the first agent you find. It is always a good plan to interview multiple prospective agents. Get information on their services, commission, and a general feel of what it is like to work with them. After you have a few options in mind, go with the agent that seems like the best fit for your situation.

Final Thoughts on REALTOR Pay

If you’re read this far, you now know how agents get paid and how commission splits work. You also know that there are more parties to the transaction than just the two agents representing the buyer and seller. Realtors incur many expenses that eat into those seemingly wonderful profits. To be sure, it’s fun and rewarding profession with many responsibilities. Marketing is just the cost of doing business. Lastly, be wary of dual agency situations.

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