How Do Real Estate Agents Get Paid????

Last month I received an email from a client of mine who was selling his house in a Seattle suburb and relocating to Birch Bay. Right before closing on his other home in Seattle, he sent me a late-night email asking how do we, as Realtors, get paid? "Wow!" I thought - this is FABULOUS! This client is asking the question I wish all clients would ask. But, then, I thought, hmmmm - this gentleman has bought one home and is in the process of selling it and buying another - three transactions and it's not clear how we "work." Then, I had another potential client say that she wouldn't buy from a realtor because she didn't want to pay for it...I worked through that with her but I thought that that which we in our profession assume all people understand, is, well, not understood! It prompted me to think back to what I thought of Realtors before I was one and I also thought about that weird 60 minutes show about Realtor commissions and I realized that we are so misunderstood! What better place to explain our compensation than in our blog!



First, with little exception, Realtors are paid with seller proceeds at a rate previously determined between the seller and his agent. Realtors receive no compensation prior to the closing of a home. The commission rate can vary considerably depending on services rendered, extent of marketing costs, value of home (super high end for example), market conditions and needs of the seller. That commission fee is then split between the listing agent(s) and the selling agent (sometimes equally and sometimes not, again according to the contract agreed to by the seller and his/her agent).

So, then what happens? Well, our Broker needs to get paid. For many agents, the broker takes a split of their commission (frequently as much as 50%!) but there are other arrangements like paying a monthly desk fee (sort of like rent) or paying less to the broker but not being able to use their supplies etc. Then what happens? Well, we have to pay Uncle Sam (like all working Americans) income tax plus self-employment taxes. Then what happens? Well, we pay all of our marketing costs, contract laborers, cell phone bills, continuining education classes etc. etc. Then what happens? We take the rest home to feed our children!

The thing to remember is that all businesses have these over-heads and all businesses cost money to run and real estate is no different. The difference is that our Gross income is revealed and most businesses only reveal their Net profit so it may seem that we take home more money than most of us really do.

There are other ways in which we are paid, too. We can receive (and pay out) referral fees to other agents who are in a better position to help our clients (either regarding expertise, geography or time), relocation companies, and in certain situations, banks.

OK, you say, that's fine but HOW do you get paid? Simple answer is: By the seller at the time of closing according the terms agreed to by the seller and his real estate agent.

But can your Realtor sell you a home that is listed For Sale By Owner? ABSOLUTELY! How do Realtors get paid then? Hmmmmm.....good question - this depends on your Realtor. Some agents ask you to sign a buyer's agency agreement that addresses this issue exactly before they will show you any homes. This agreement may stipulate that should you buy a FSBO home, and the seller won't pay a commission, then the buyer ads it in to their cost. Sometimes, this is negotiated after the home is found. Either way - you can have representation and an expert on your side - and your agent can be compensated for his/her work.

There are multiple variations and scenarios in all aspects of real estate, including agent compensation, but this general over-view may help those of you unfamiliar with our profession understand the process a little, and certainly enough to ask more questions, which we invite!

Live Good. Be Happy. Be Curious!

-Emily