You’ll likely work with a real estate agent to guide you through the process if you’re looking to purchase or sell a house. Most real estate brokers are compensated for their work through commissions based on a portion of the property’s sales price.
Several variables, such as the volume of transactions they complete, the commissions they earn, and the split with their sponsoring broker, affect how much money agents make each year. Here is a breakdown of how much real estate brokers make and how they are compensated.
Most real estate agents are paid commissions that are given directly to the brokers and are calculated as a percentage of the property’s sale price (commissions can also be flat fees, although such are considerably less frequent).
Realtor vs Broker vs Real Estate Agent
How real estate agents are paid is explained in part by the interaction between agents and brokers.
Real estate agents are salespeople who have obtained a license to operate under a designated real estate broker’s supervision who ensures the agents abide by local, state, and federal real estate rules. Agents are not allowed to work independently and cannot take commissions from clients directly.
Real estate agents are employed by brokers who can function independently. There is one designated broker for each real estate office. Every commission must be paid directly to the broker, who divides it with any agents working on the deal.
How Do Real Estate Commissions Work?
A listing agreement, a document outlining the specifics of the listing, including the broker’s compensation—typically a commission—is signed by the seller and the listing broker when a property is placed on the market. It’s crucial to remember that the commission can always be altered. In reality, any attempt by members of the real estate industry to enforce standard commission rates—however subtly—violates federal antitrust law.
Commissions typically range between 5% and 6% of the selling price, though they might vary depending on the market.
The seller pays the commission unless the buyer and seller agree upon a split. It may be claimed that the buyer always pays at least some of the fee, either directly or indirectly, because most sellers include the commission in the asking price (through a higher purchase price).
With their sponsoring brokers, the seller’s agent and buyer’s agent have agreements detailing the agent’s commission percentage. Any other split they choose is OK; it can be a 50/50 split between the broker and the agent.
Shared Commission Structure
Real estate commissions are frequently split between several parties. The commission in a typical real estate deal is divided into four parts:
- The agent that purchased the listing from the seller is the listing agent.
- The broker who hires the seller’s listing agent is the listing broker.
- Buyer’s Agent: The representative of the buyer
- The broker who hires the buyer’s agent is known as the buyer’s agent’s broker.