How do REALTORS get Paid?

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Have you ever wondered how real estate agents and/or REALTORs get paid? It's not as simple as a 9 to 5 job.

Realtors, or real estate agents, are professionals who help individuals buy and sell real estate. They are licensed by the state in which they practice and are typically paid through commissions, which are a percentage of the sale price of the property.

Here's how it works: when a Realtor helps a buyer purchase a home or sell a home, the commission can come from either the buyer or the seller. When a seller signs a listing agreement with the agent, they can decide whether or not to offer a commission for the buyer's agent.

If the seller chooses to offer a commission, it is typically split between the Realtor who represents the buyer, and the Realtor who represents the seller. The commission is negotiated in advance and is typically a percentage of the sale price of the home, although it can also be a flat fee.

Although, if the seller chooses not to provide a commission for the buyer's agent, often the buyer will have to include that as part of their closing costs. This is a negotiable item with the agent as part of the buyer brokerage agreement. This should be completed before homes are ever shown to you.

Many brokerages split the commission with the agent in some form. This can be on average 50-70%. For example, let's say a Realtor helps a buyer purchase a home for $300,000 and the commission is 6% of the sale price. The Realtor's commission would be $18,000 ($300,000 x 0.06 = $18,000). If the commission is split equally between the buyer's Realtor and the seller's Realtor, each Realtor would receive $9,000. This is before any brokerage fees are paid out.

Now that $9,000 is $4,500 to the agent before taxes and fees. It's important to note that Realtors are independent contractors, which means they are not employees of a brokerage or real estate company. They are responsible for paying their own expenses (gas, marketing expenses, real estate dues, operating expenses) and self-employment taxes (typically roughly 30%), and they typically do not receive benefits such as health insurance or paid time off.

Realtors are typically paid on a commission basis because it aligns their interests with those of their clients. When a Realtor helps a client buy or sell a property, they are paid a commission only if the transaction is successful. This incentivizes Realtors to work hard to ensure that their clients are satisfied and that the transaction goes smoothly.

This is why it is important to stick with one realtor. Since often they spend nights and weekends working for you and will not receive compensation until a successful closing, you will want to choose someone you feel will work in your best interest and understands your needs. Imagine working for a month and never getting paid, that is the risk an agent takes - so consider this when selecting your agent upfront. 

Overall, Realtors are paid through commissions, which are a percentage of the sale price of the property. Commission rates can vary depending on the location and type of property, as well as the services provided by the Realtor. If you are considering working with a Realtor, it's important to understand how they will be compensated and to discuss any concerns you may have before entering into a contract.