How Are Realtors Paid?
Realtors are paid for selling marketing, legal, negotiation and other services during a real estate transaction. They are typically paid for these services through a commission fee charged to their clients.
This fee is often based on a percentage of the final sales price. A common real estate commission is 6 percent, but this varies transaction to transaction. Commissions are negotiable, and it is illegal for real estate agents to set a standardized commission or fee for services.
Also, this 6 percent example represents what the seller pays, not what the Realtor receives. In each transaction, there are typically two agents—one representing the seller and one representing the buyer. So the 6 percent becomes 3 percent for each agent.
Even this share is not held completely by the agents. Each agent must compensate his or her broker for the office, training, and technology they provide. This split can be 60/40, 70/30, etc., depending on the brokerage. Some brokerages grant the agents a 100% share but require them to pay a regular fee.
Why Are Realtors Paid Like This?
For many families, real estate is the most valuable asset they own. As such, buying and selling real estate is a complicated and potentially risky endeavor.
A Realtor’s job is to help mitigate this risk by ensuring an orderly, secure transaction of property. Commissions allow Realtors to receive compensation that is commensurate to the service they provide. In a real estate transaction worth $100,000, there is uncertainty and risk. In a real estate transaction worth $1 million, it’s fair to say that the risk is higher. Say Realtors are paid more when there is more at stake.
Who Pays Realtors?
In most real estate transactions, the commission is typically charged to the seller. But this does not mean that the seller pays, necessarily. The argument can be made that a rational seller would include any costs associated with selling the property at the property’s selling price. This would pass the commission on to the buyer.
But this too depends on many factors, including the nature of the local housing market and the demand for the specific piece of property.
So, now you know how Relators are paid. Questions or feedback? Leave them in the comments. Or for more, Realtyna content, check out How the Real Estate Industry Works.