If you are in the market for a house, the odds are, you’ll be working with a realtor. And let’s not beat around the bush: a realtor can make your house-hunting easier, more streamlined and ultimately, better.
They’ll narrow down your search, find the appropriate places for you based on your needs and wants, and help you negotiate a deal that saves you money. Having a realtor on your side during your house-hunt is the best thing you can do.
The same applies if you’re selling your home. These are the experts that can help you get a better deal selling your home, maximize its marketing potential and ultimately, help you get a tidy profit when selling your place.
Which all leads to the most important question that arises with realtors: how do they get paid?
In this special blog, we look at how realtors get paid and how it affects your ability to buy or sell a house.
Your Guide to How Realtors Get Paid
It’s All Commission
The majority of realtors and real estate agents get paid through one method: commission.
Commission, for those you don’t know about it, means you get paid for the work or sale that you do. You don’t get paid an hourly rate or a salary. You only get paid when the job – or in this case, the deal – is complete.
This can be best summed up by Investopedia: “Most real estate agents make money through commissions. These are payments made directly to real estate brokers for services rendered in the sale or purchase of property. A commission is usually a percentage of the property’s selling price, although it can also be a flat fee.”
An Example of How Realtors Work
Here is a breakdown of how a sale would work:
The seller notifies the realtor about selling their property and agrees to pay the commission. The realtor then advertises the property on listings online and in the paper to generate interest.
A buyer finds the place and notifies their realtor that they wish to purchase the property. The buyer’s realtor submits the bid, and if accepted, both realtors work together to finalize the purchase of the property.
When the property is officially sold, and the transfer of ownership is complete, the commission is split between both the seller’s and buyer’s realtors…
But it comes from the total sale of the property from the seller’s side. The buyer does not pay the commission. Only the seller has to pay the commission, which is taken from the total proceeds of the sale.
How Much is the Commission?
The commission can vary depending on the market, type of household and area. But in most cases, the commission is between four to six percent of the deal.
Take this example from Realtor.com: “So if a home sells for $200,000 at a 6% commission, the seller’s agent and buyer’s agent might split that $12,000, and each receive $6,000. The commission split varies from one agent to another, with new agents sometimes earning a smaller percentage of the commission than experienced agents who sell more homes or more expensive properties.”
Therefore, in some cases, one realtor might get 60% of the commission while the other gets 40%. It could also be a 70-30 split, but rarely any lower than that.
Can You Negotiate the Commission?
It all depends on the realtor themselves, but in some cases, you can make an argument for reducing the commission rate.
You will have to give a fair explanation as to why this is the best for both parties. It would most likely work in situations where the property being sold is expensive, as the commission fee would be extremely large at that point.
What Value Do I Get From the Realtor?
Plenty! When you consider the commission you’re paying for what you’re getting in return, you can see why it’s a good deal.
If you’re selling your house, the realtor will:
- Place your home on MLS listings
- Write the copy and material for your home, so it gets the best points across
- Advertise your home on their website and social media
- Offer you tips on how you can improve your home to increase its value
- Provide you with a list of professionals to help you enhance your home
- Set up appointments for viewing the home
- Set up your home for staging – where potential buyers view the property
- Negotiate the deal on your behalf
- Finalize the payment process
If you’re buying a house, the realtor will:
- Give you access to an extensive list of properties for sale.
- Narrow down your search based on your needs and wants
- Organize viewings on your behalf
- Provide you with insight on each property and its prospects
- Negotiate the deal on your behalf
- Finalize the payment process
- Provide you with a list of professionals to help you with key closing factors (home inspections, property lawyer and condo-board reviewer, if applicable)
- Hand over the keys to you
The best point to keep in mind with all this is that realtors do not get paid a salary or hourly for any of their work. They could spend hours, weeks or even months trying to get a deal in place.
The Bottom Line
As you read this, you now know there is much more to realtors and their payments process than initially thought. A lot of work goes into buying or selling a home, so it seems fair that realtors would get paid fairly. Now that you know the extent of their work and how the process works, you know what to expect when selling or buying a home!
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