Unless you work in the real estate industry or have extensive experience buying and selling properties, it is likely that you don't understand exactly how real estate agents are paid. Where do all of the commissions go? Often times, people avoid contacting a real estate agent in an attempt to avoid paying a commission. This is due to an unfortunate misconception. While every situation is unique, the likelihood is that having an agent on your side will only benefit you and help save you money in the end.
For example, did you know that using a realtor as a buyer costs you nothing? That's right... our services are free to home buyers! In fact, being represented properly by a real estate professional can actually help you save money by negotiating the best deal on your behalf, and guiding you through the process to help avoid common pitfalls (that could end up costing you a lot of money). Your agent will be compensated by the seller only after you find a home, make an accepted offer, and close the transaction.
Home sellers contract a realtor to list their home for a pre-determined commission rate. Sellers pay nothing until they accept an offer on their home and close the transaction. The commission is then taken from the proceeds of their home's sale, and distributed accordingly. This means that if your home does not sell, or if you decided to take it off the market for any reason, you do not pay us anything. See below for a simple example of how a commission is split. We only get paid when we get the job done!
•· Home sale price of $100,000 with a 6% commission rate = $6,000 total
•· Selling agent commission 3%= $3,000 (agent brings qualified buyer to the home for sale, facilitates financing, inspections, etc)
•· Listing agent 3%= $3,000 (markets home for sale through various print & internet media, holds open houses, distributes marketing materials, etc)
•· Each agent then must split their earned commission with their broker. The broker keeps up to half of the earned commissions to pay for costs incurred during the transaction (all advertising expenses, office space, supplies and staff, etc). Therefore, the actual compensation for each agent is approximately $1,500 for all of the time and services provided during the transaction. A single transaction can last from 1-12 months depending on circumstances.
Because there is no salary, realtors depend on the loyalty of clients in order to be compensated for all of the time and work dedicated to serving them.
Wanda, Thank you for informing consumers about our commission splits and the value of our time.
Great post Wanda. Public awareness of your points is very beneficial to our business!
Wanda, so often we take it for granted that the consumer knows how it works. Thanks for spelling it out! Great job by you!
Great post. I think it will prove to be very informative.
thanks
Wanda,
That was great! This is a very confusing are for most buyers.
Wendy
Thank you for your comments! I still have friends that think I get paid a salary and commission.
Have an awesome day!
Wanda
Great post Wanda. A "seasoned" agent taught me the 6 1-dollar bill trick. During a listing presentation, if a client complains about "our" 6% commission, pull out 6 1-dollar bills and demonstrate: 3 go to the Buyers Agent, 1 goes to my Broker, 1 goes for advertising and taxes, that leaves me with ONE DOLLAR!!! best wishes from Clifton Park, NY.
Thank you Lewis! I have heard about 6 one dollar trick, but have never used it.