How Do Realtors Get Paid?

Did you know that Realtors are paid on commission? It may be commonly known that Realtors are paid a commission but how? Oftentimes buyers and sellers are unaware exactly how their real estate agent will be paid and who is responsible for that compensation. It is important to mention that real estate commissions are negotiable and that the numbers covered in this post are just to be used as an example. 

Monticello’s Real Estate Resource, Renee Dawkins with Ketcham Realty Group talks about Realtor’s commissions and how they are paid.

It usually comes as a surprise to the buyers that their Realtor’s commissions are typically paid from the seller’s proceeds. This means the buyers are not actually paying for their Realtor’s representation during the transaction. It is also very important to take this opportunity to mention, this means that your Realtor will not be paid until you are at the closing table. If you are working with a Realtor that has shown you multiple homes, negotiated offers on your behalf, or represented you in any way (and you have not yet closed on a home), that Realtor will not be compensated for their work up to this point until you close. Please keep this in mind before you reach out to an agent regarding a listing you found online, or attend an open house and talk to the Realtor who is working at that time. You should always end your relationship with your Realtor before you begin a relationship with a new Realtor.

Now that we have that out of the way, let’s talk numbers! Say the purchase price of the home is $100,000 and the seller negotiated a total of 6% commissions. The total commissions to be paid would be $6,000 for this purchase. That total commission would be split equally between the both the buying and selling sides. This means that the brokerage representing the buyer’s side would be entitled to 3% and 3% would also go towards the brokerage representing the seller’s side. Both the buyer’s agent and the seller’s agent would receive a portion of that 3% as their final commission payment. Agents and their brokerages have different percentage splits, for this example we will use a 50% split. This would mean the final payment to each agent would be half of the 3%, or $1,500 to both the buyer’s agent and the seller’s agent.

Although Realtors are self employed, they have their license held by brokerages. The broker is the one who is responsible for ensuring the Realtor (or real estate agent) is properly paid. At the closing table both sides will receive commission checks. It is important for all clients to understand how Realtors are paid, regardless if you are a buyer or a seller.