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How Do Real Estate Agents Get Paid? Photo KnowInsiders

It’s no secret that many people get their real estate license for the handsome commissions - but how exactly are those doled out, and when does the agent get paid? In this post, we’ll explain the process behind the pay process and the expenses that a typical real estate agent will experience.

Real Estate Agents only get paid when there is a closing on the property they have helped sell. They do not get a salary they are self-employed. They are agents of the brokerage, not employees. Agents have significant expenses, and these are all paid out of pocket by the agent. If you see another property you are interested in, tell your real estate agent, and he can schedule a showing. Remember, you save no money by dealing with a listing agent directly. You just cut out the agent that has been working hard to assist you and your agent will simply not get paid for all of his previous efforts.

Who is a real estate agent?

Photo Getty
Photo Getty

A real estate agent is someone who helps people to either buy or sell a home or a piece of property. This may range from humble plots of land and small starter homes to exotic islands and luxury mansions. One can work either as a listing agent, to help a client sell a home, or as a buyer's agent, to help the client buy a home. Real estate agents are employed worldwide as the need for buying and selling homes and property has always existed and will continue to do so. It is a good business if you are honest and loyal to your client.

What is the workplace of a Real Estate Agent like?

A real estate agent's workplace is as varied as the property they buy and sell and the clients they deal with. While some time is spent in an office environment, a lot of the real estate agent's working life involves travel and irregular hours. The agent will need to visit properties as well as attend meetings with prospective and current clients. This may take place during the day, in the evenings as well as weekends to meet client needs.

The real estate agent also attends industry conferences and seminars to stay up to date with current trends as well as keep up their contacts and professional network. They must also keep up with all the available properties in the area, therefore going to agent open houses every week is essential in order to keep as current as possible.

Who Pays the Real Estate Agent?

It can be argued that the buyer always pays the commission. Why? Because it's typically part of the sales price. If you are a buyer, you can combine closing costs like commissions into your mortgage.

Here are ways commissions are typically structured.

The Seller Pays the Buyer's Commission

Under a buyer's broker arrangement, the named brokerage and agent represent the buyer. The fee paid to the broker is most commonly paid by the seller.

Some buyer broker agreements contain clauses that will compensate the brokerage for the fee it is due less the amount paid by the seller. For example, a cooperating listing might offer to pay a broker a smaller portion of the sales price, but the brokerage charges fees that are a higher percentage. The difference could be paid by the buyer if the broker chooses not to waive the difference.

Buyer Pays the Commission Directly

The seller is not obligated under most listing agreements to compensate the listing broker for more than the listing side's portion of the commission. Often, sales prices are reduced to reflect the amount the buyer is paying.

Commission Splits

The entire amount of the commission rarely goes to the listing agent. In fact, agents are not even able to receive commission payments directly. Instead, the payment is made to the broker under whom the agent works. The broker then pays the agent according to their agreement.

Normally four real estate professionals split the commission. They are:

-Listing agent

-Listing broker

-Buyer’s agent

-Buyer’s broker

The commission is first split between the listing broker and the buyer’s broker. This split varies. Sometimes the listing broker will get a larger portion. But around 50-50 is typical.

Then the listing broker splits his or her share with the listing agent. And the buyer’s broker splits his or her share with the buyer’s agent. Again, the split between agent and broker is negotiable. It’s often around 50-50. However, newer agents may get as little as 30%.

Experienced agents could get 100% of the commission. These agents pay “desk rent” to their brokers instead of splitting the commission.

Sometimes one or more of the agents also has the additional training and licensing to act as his or her own broker. Then the agent-broker doesn’t have to split his or her share.

Who Pays the Commission?

The commission comes out of the proceeds of the sale before the seller receives any money. So the buyer is the one who is obligated to pay.

However, since the sale price includes the commission, the buyer is also paying the commission. Sometimes buyers may be able to negotiate a lower price if a seller is representing himself or herself and therefore doesn’t have to pay a seller’s agent commission.

A seller without a listing agent may still be called upon to pay the buyer’s agent a commission. However, the commission will likely be lower than the full commission that would be paid if there were buyer and seller agents on the deal.

Like everything about commissions, a buyer and seller can negotiate the way the commission is paid. A seller could agree to pay a portion of it.

If neither buyer nor seller is represented by an agent, there is no sales commission. Often in this case one or both parties would hire a real estate agent, broker or attorney to oversee preparing documents for closing.

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How do real estate agents get paid?

How Do Real Estate Agents Get Paid?
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To put some hard numbers to all this, let’s look at how agents would be paid on a typical transaction of a $200,000 home with a 6% commission:

The total commission would be $12,000. That’s $200,000 times 0.06.

The listing broker and buyer’s broker would often split that equally. So each would get $6,000.

Then the brokers would pay their agents. Assuming their deals call for 50-50 splits, each agent would get $3,000.

Note that the agents and brokers are usually only paid if the transaction is completed. If something goes wrong before closing, typically nobody gets paid.

There are exceptions, however. Listing agreements generally spell out circumstances when the commission may have to be paid to the listing broker even if the house doesn’t sell.

For instance, if a capable buyer makes an offer and the seller simply decides not to sell, the seller still may be required to pay the commission. Other cases like this include if the seller can’t produce a clear title or can’t turn the house over to a buyer within a reasonable period of time.

How Much Do Real Estate Agents Get Paid?

Photo The Balance
Photo The Balance

One of the first questions people have before beginning a career as a Real Estate Agent is "How Much Money Does the Average Real Estate Agent Make?" The above infographic tells you exactly how much Realtors make as well as how those commissions are made. Many Realtors are part-time professionals who hold a real estate license, without actively selling homes and thus the numbers are a bit skewed taking into account both full-time and part-time Real Estate Agents.

The $38,067 is the average commissions Real Estate Agents make, though most full-time Agents will exceed that number. My first year as a Realtor is the only year I made less than the $38,067 average commissions number and I think that for most Agents who work hard will see the rewards can be much greater than $38,067 per year.

How Much Do Real Estate Agents Make Their First Year?

Years of Experience

Median Annual Income

Less than two years

$42,304

3 to 4 years

$42,452

5 to 6 years

$42,599

7 to 9 years

$43,168

10 to 14 years

$47,166

More than 15 years

$49,426

Your first year in Real Estate is likely going to be your most challenging.

Real Estate Agents in their first year should expect to go a minimum of 9 months without making anything. One piece of advice for most first-year Real Estate Agents is that they should have supplemental income whether that's in the form of another job or earning money through other avenues.

One of the best ways to get started in real estate is to join a team or a brokerage that can provide you with an influx of leads that will lead to closings for you.

For anyone who has tried to live on $14,372.13, it is nearly impossible, especially when you're spending money to market your real estate business.

Do Real Estate Agents Make Money by The Hour?

The short answer is no. Real Estate Agents do not make money by the hour. Real Estate Agents make money by the number of houses they sell and there is a direct correlation between how many hours you work and how much money you make.

There are a lot of part-time Agents who have a real estate license and will never sell a home. Their time and effort are not put into building their real estate business.

For those Agents who make real estate a career and a full-time job they put in the hard work and effort to build a successful career as a Real estate Agent. These folks will make far more than the average Real Estate Agent who brings in $38,067 on average.

Factors That Can Improve A Real Estate Agent’s Income

Photo Getty
Photo Getty

Real estate agents make money when a property sells. However, certain factors can help increase an agent’s income above the average salary.

Experience

Although a 6% commission rate is the average, some real estate agents charge a higher commission on the listing agreement due to their experience. However, more years of service doesn’t necessarily guarantee someone is the best real estate agent.

Property Type

Agents that expand their clientele outside homeowners can also increase their take-home pay. Real estate agents can make a lot more money selling commercial real estate than residential real estate, mainly because commercial properties have a significantly greater purchase price.

Lead Generation

A real estate sales agent can make more annually by generating more leads and selling more houses. Developing an efficient prospecting system usually comes with time, along with building connections with other agents.

How to Become a Real Estate Agent in 3 Steps

Step 1: Take Pre-Licensing Courses

Each state has different requirements to be a licensed real estate agent. For example, in California, a person must take three real estate classes for 165 hours. On the other hand, New York only requires 75 hours of salesperson qualifying education courses in real estate.

Therefore, it's essential to research a state's real estate licensing information. Being licensed in one state doesn't permit an agent to practice in another.

Courses can be completed on-line or in person. But, make sure the classes are recognized and accepted by the state.

Step 2: Take Real Estate Salesperson Exam

Your course instructor should be your first resource in helping you apply for the real estate salesperson exam. Be sure to follow the application process to avoid delaying the exam.

It’s to your advantage to take the exam sooner rather than later while the information is still fresh in your mind. Most states require a background check, which can take weeks to finish. So, keep on studying!

Step 3: Join a Brokerage

Agents are not allowed to sell houses independently. Instead, agents must join a real estate brokerage, where a broker will oversee all the agent's transactions.

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