How Do Realtors Get Paid?
When you want to buy or sell a home, one of the first things you need to consider is who will represent you in the transaction. If you're serious about getting the best deal on the sale or purchase of property in the U.S., having a real estate agent on your team is always a good idea. While a good agent is crucial, it can be hard to determine who pays for what. This article discusses the benefits of hiring a realtor, the different types of realtors (yes, they are different types!), and how each is paid.
Benefits Of Hiring A Realtor
Real estate agents are often the first step in the home buying process. They help you find the right house and negotiate on your behalf. Conversely, agents can help you get your home ready for sale, market it to buyer’s and ensure you’re getting top dollar for your investment. But if you think that all real estate agents are created equal, think again.
Real estate agents come in all shapes and sizes — buyer's agents, seller's agents, dual agents — and there are a few things to know about each type before hiring one.
Buyer's agent
A buyer's agent is an agent who represents the buyer throughout the home-buying process.
It makes sense to hire a buyer's agent if you're looking for a new home. These agents represent their clients' interests exclusively and can help them find houses that match their needs and price range. Plus, they'll negotiate on their client's behalf, so they have more time to focus on things like packing for the move or getting their kids ready for school in the fall.
Seller's Agent
A seller's agent is an agent who represents the seller in the sale of their home. Seller's agents work on behalf of sellers who want to sell their homes quickly at the best price possible. These professionals will help set realistic expectations regarding pricing and negotiate offers from potential buyers so sellers can get top dollar for their homes without waiting around.
Dual Agents
Dual agents represent both the seller and the buyer. Dual agents are uncommon, and it’s typically best to work with an agent that specializes in buying or selling property.
Types Of Realtors & How They Get Paid
Buyer's Agents
There are two ways that buyer’s agents are compensated:
- Flat fee: A flat fee is a set amount of money paid to the buyer's agent for their services.
- Percentage of purchase price: In this method, the buyer's agent gets a portion of the purchase price of a home. This percentage is calculated as a percentage of the sales price, or what a seller receives from the home sale (i.e.," net proceeds"). The industry average for buyer's agents is between 2.5% and 3% of the sales price
Most real estate agents are compensated with a commission based on a percentage of the sales price, and the seller typically pays the commission for the buyer's and seller's agent out of the net proceeds.
All commissions are paid to the seller's brokerage, which then pays its agent and the buyer's brokerage. The buyer's brokerage then pays its agent.
Seller's Agents
There are three ways that seller's agents are compensated:
- Flat fee: Your real estate agent will be paid a single flat fee for their services.
- Percentage of sale price: Your agent will be paid a percentage (usually 5% to 6%) of the sale price. This is the most common way that realtors are compensated.
Percentage of commission: Real estate agents who work for brokerages may receive only a portion of their commission as payment for their services. Each brokerage company (think Keller Williams, Redfin, or RE/MAX) may collect 2.5 to 3% of the sales price.
Dual Agents
Dual agents often charge the seller a lower commission than a buyer's agent. This is because dual agents represent both parties in a transaction, but they do not require all of the same services as a typical agent who represents just one party (i.e., buyer or seller).
They are not allowed in some states because they violate antitrust laws when competing against other real estate professionals. Dual agency is illegal in Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont. Dual agents must disclose their dual status to all parties involved in the negotiation process, which can cause conflict during negotiations and raise questions about loyalty.
Payment Process
Real estate commissions follow this general order (though it may vary from state to state):
- The seller pays the seller’s agent brokerage
- The seller’s agent brokerage pays the seller’s agent
- The seller’s agent brokerage pays the buyer's brokerage
- The buyer's brokerage pays the buyer's agent
Wrap-Up
We hope this article gives you a better understanding of how real estate agents get paid. As you can see, there are different types of agents, and each is paid by various methods (flat fees vs. percentages). If you have any questions or concerns about the process, please don't hesitate to reach out!
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