How Do Realtors Get Paid?

Realtors act as intermediaries between buyers and sellers, earning commissions when a property transaction closes. But who pays this fee, and how much do realtors typically earn? This article explains how realtor commissions work and when they receive their payment.

What Is the Difference Between a Realtor and a Real Estate Agent?

Many people use the terms “realtor” and “real estate agent” interchangeably, but there is a distinction. Realtors are real estate agents who are members of the National Association of Realtors (NAR). In contrast, real estate agents are licensed professionals working in the real estate industry. Both assist buyers and sellers with property transactions, but only realtors adhere to a strict code of ethics set by the NAR.

How Real Estate Commissions Work

To understand how realtors get paid, we first need to clarify what a real estate commission is. A commission is a percentage of the home’s sale price that the realtor representing the buyer or seller earns. Typically, the buyer’s and listing agents split this total commission.

What Is a Realtor’s Commission?

A realtor’s commission is their payment for services rendered, such as helping a homeowner sell their home or a buyer purchase one. The commission rate is negotiated between the realtor and the client at the transaction’s start.

What Is a Typical Commission?

The typical commission rate for a real estate sale is 6% of the property’s sale price, with both the buyer’s and seller’s agents splitting the commission, receiving 3% each. For example, if you sell your house for $500,000 at a 6% commission, the total commission would be $30,000, with each realtor receiving $15,000. However, commission rates can vary based on region, market conditions, and property type.

What Does a Realtor’s Commission Include?

A realtor’s commission usually covers several expenses associated with the sale, including:

• Realtor’s services: Compensation for helping buyers or sellers with the transaction.
• Marketing and advertising: Costs of promoting the property.
• Legal fees: Expenses related to the legal aspects of the sale.

Who Pays Realtor Fees?

Technically, the seller is responsible for paying realtor fees, though this payment comes from the proceeds of the property sale. In some cases, the seller’s agent may act as both the seller’s and buyer’s agent (dual agency), receiving the entire commission. The seller and their agent negotiate the commission rate before listing the property. While hiring a real estate agent can seem costly, their expertise often simplifies marketing the home, finding buyers, and navigating the selling process.

How Realtors Receive Payment

Once a real estate transaction completes, the listing broker ensures agents get paid. The brokerage receives the commission from the seller’s attorney or closing agent and then distributes the payment to the realtor. This payment is usually split between the realtor and their brokerage, with possible deductions for advertising costs or association fees.

Determining Realtor Commission

The commission rate is determined through negotiation between the realtor and the client before signing a listing agreement. The rate can vary based on the region, real estate market, and property type.

When Do Realtors Get Their Commission?

Realtors receive their commission after the transaction closes, typically at the sale’s closing. It can take up to 30 days for the payment to process and distribute to the payees.

Sharing Commissions with Other Parties

Realtors often share their commission with other involved parties. The buyer’s and listing agents split the commission. Additionally, if a realtor refers a client to another realtor who closes the transaction, the referring realtor may receive a percentage of the commission.

What Happens If a Sale Doesn’t Close?

If a sale doesn’t close, realtors do not receive a commission. Payment only occurs once the transaction is complete. Some brokerages may have policies that provide reduced commissions in specific circumstances, such as natural disasters or financing issues.

Other Real Estate Pay Models

Not all realtors work on a commission basis. Some charge flat fees, hourly rates, or a percentage of the sale price.

Do Realtors Receive a Base Salary?

Realtors typically do not receive a base salary as they are self-employed. They earn payment only upon completing a real estate transaction.

Common Real Estate Agent Fees

Real estate agent fees are a significant expense in a sale. On average, agents in the U.S. charge around 6% to sell a home, split between the buyer’s and seller’s agents. However, this percentage can vary. Agents may charge a flat fee or a lower percentage for more expensive properties. It’s essential to research and discuss fees with potential agents before deciding to work with them.

Paying Your Realtor

Typically, you don’t pay your realtor directly. The commission comes from the property’s final sale price. If selling a home, the commission is deducted from the sale proceeds. If buying, the seller pays the agents.

Understanding how realtors get paid helps you navigate real estate transactions more effectively. This knowledge can aid in negotiating better terms and making informed decisions when buying or selling property.

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