Many people wonder how real estate agents get paid. The simple answer is that
they work for commission — a percentage of the money that exchanges hands
during the transaction. This money is typically not paid out until closing and
settlement are complete, so real estate agents are only compensated when they
close a sale.
The amount of the commission varies from one property to another, but typically is
in the range of 5 – 6% of the selling price. The seller normally pays this fee, though
some states allow the buyer to pay it as well.
There are also additional fees that may be involved. These can include referral fees,
which are negotiated amounts paid to other companies that brought the agent a
potential client (i.e. a listing agent might pay a referral fee to another broker who
helped sell their client’s home) and brokerage fees, which are negotiated rates that
are paid to the brokerage that employs the real estate agent. These are deducted
from the total commission before it is split between the agents and brokers.
Unlike attorneys or accountants, who may receive bi-monthly paychecks, real estate
agents don’t get regular salaries. Instead, they are independent contractors who are
paid on a commission basis. The nature of this income can sometimes cause some
anxiety, especially for new agents who aren’t used to not having a steady paycheck
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Most real estate agents are paid a percentage of the selling price of a property, and
this is the way that the majority of transactions are structured. There are, however,
some agents that charge flat fees for services, such as listing a property or helping
with a short sale. In some cases, buyers will negotiate a reduced commission rate
with sellers in order to keep the final sales price as low as possible.
The amount of time that it takes for a real estate transaction to close can vary,
depending on how long the property has been on the market and whether the buyer
or seller backs out of the deal at any point during the process. As a result, some
months will be busier than others, and the amount of commission that an agent
receives can fluctuate greatly from month to month.
As an independent contractor, a real estate agent also must pay taxes on their
income. Since they don’t receive a regular salary, they must file quarterly estimated
taxes on their earnings. This can add up quickly, and is a major consideration for
many real estate agents. It’s important for any prospective real estate agents to
consider these fees as they prepare for their careers. By carefully considering the
commission structure, they can make the best decision for their own financial future.
