I’m often contacted by prospective buyers and sellers who eventually ask how payment and commissions work. So I thought I’d give you the bottom line as to how real estate agents get paid.
Homeowners who list their properties are typically responsible for paying the commission to the brokers (e.g., the companies affiliated with each agent) who represent the seller and the buyer. The listing agent negotiates a commission up front, and this is included in the seller paperwork. Total commissions for both brokers range from five- to six percent, and are typically divided equally. For example, a five percent commission on a $1,000,000 condo would find the seller paying $50,000 in commissions, with the brokers each receiving $25,000.
The broker then pays the real estate agent according to whatever split is set by the broker. Splits range from 50% to around 90%, and are based upon how much money the agent is earning. The more money the agent earns, the more favorable the split.
Home buyers aren’t directly responsible for paying real estate agents a fee. An agent who represents a buyer doesn’t get paid until the buyer actually purchases a property.
It’s worth mentioning that real estate agents are never guaranteed a paycheck. There are times when sellers decide to withdraw a property from the market after their agent has been marketing the home for several weeks or months, and there are buyers who can house hunt and write offers for months or even years before they actually buy.
In the meantime, agents are responsible for covering their own cost of living (including medical insurance), as well as hundreds of dollars in association and transaction fees, marketing costs, and annual broker service fees/insurance that can be as high as $5,000/year. And oh, yeah—we have to pay taxes on our income, too. That big check you think your Realtor is getting? He or she will end up walking away with a fraction of that money.