Real Estate Agent and Trainer, Robert Rico, explains how Real Estate Agents get paid and talks about commission. Do you want to see more video blogs? Subscribe here!
It’s no secret that many people go into real estate for the handsome commissions – but how exactly are those doled out, and when does the agent get paid? In this post, we’ll explain the process behind the pay process and the expenses that a typical realtor will experience.
One of the biggest pills to swallow when becoming a real estate agent is the fact that you’ll only get paid if the home sells, if the transaction closes, and if the purchases officially records! Regardless of how many hours you might spend with the sellers, how many showings you might conduct with a buyer, there is always a possibility that you may not get a paycheck for that time spent working diligently alongside your client! However, when the home does sell, you’ll get a commission check – and those can be sizable.
For most transactions, agents agree on their commission percentage with the sellers before signing a listing contract. A typical commission is 6% of the sales price, split evenly between the buyers’ agent and seller’s agent, typically taken from the seller’s proceeds of the house sale (so, 3% each). Some agents will try for an uneven split (for example, 3.5% for the listing agent and 2.5% for the buying agent), but that is not a typical practice.
Although the real estate agent will typically earn 3% when representing either the buyer or seller, there are other fees that an agent is responsible for upon closing the transaction! For example, most agents are on a commission split with their brokerage – meaning they may have agreed to give up 10%, 20% or even up to 50% of their earned commission to their brokerage! As we discussed in our article, What to Consider Before Joining a Brokerage, it’s very important for a new agent to evaluate what they are getting from their brokerage for the portion of their commission they have to give up.
Another expense that all agents may be faced with is E&O (errors & omissions) insurance to protect against any potential lawsuits that may arise during a transaction. Every transaction is extremely important to the principals involved and they expect to be protected at all times by their real estate representatives; however, there is a possibility that there may be a disagreement between the principal and their agent/broker that may lead to a lawsuit. Most agents’ E&O is paid for by the brokerage, and that’s part of the services for which the brokerage charges the agent.
Brokerages also charge agents (usually flat fees) for other services such as desk fees, Transaction Coordinator (TC) fees, and marketing fees. The marketing department will typically handle the production of the flyers, create the agent’s website and business cards, and more. The TC handles much of the paperwork involved in a sale transaction. Of course, a TC is not needed if a sale does not go through, but the marketing efforts have already been made, so many agents can end up out-of-pocket on a cancelled listing!
In any case, whether representing the sellers or the buyers, being an agent can involve a lot of expenses before a very lucrative payoff. It’s important to remember this when starting out in real estate, and to make certain that you have a good safety net for all the expenses you’ll incur before your first paycheck.
After all is said and done, being a real estate agent can lead to some very large commission checks and the freedom to set your own schedule. Be brave and take charge – it’s your goal to become a top agent!