So, You’ve Bought (or Sold) Your Home — How Does the Real Estate Agent Get Paid?
If you’ve ever worked with a real estate professional like a Realtor or real estate agent to buy or sell a home, it may have crossed your mind at some point, “Hey, how is this person getting paid?” They seem to do a lot of work for you and with you with no fee up-front. But don’t you worry, realtors get paid in a pretty straightforward way.
Understanding how real estate agents get paid is important for both buyers and sellers. Both parties should understand what they are paying for and where their money is going. To help us get a good understanding of how real estate agents make money, I reached out to Stephanie Weidenhoft, a Wisconsin agent with Property Shoppe Realty.
How do real estate agents make money?
When a seller lists their home with a real estate agent, they don’t typically pay any money up front for help in listing and marketing their property. On the buyer’s side, they don’t pay an out-of-pocket fee to the agent who shows them homes.
Real estate agents get paid on commission — a percentage of the final sales price. This makes it in their best interest to do the best possible job to sell the home or help the buyer find a home quickly.
What is a typical commission?
In 2021, real estate agent median pay was $48,770 per year. But actual salaries vary widely depending on the type of home, region, and individual commission rates. While the commission percentage can vary depending on the brokerage — the company that oversees agents — and the region, a common commission rate is 6 percent. Based on the median sale price of just under $403,000 in September 2022, the commission for a home sale would be $24,180.
Now, let’s take a look at who pays the commission, when real estate agents get paid, and how much they actually make.
Who pays the real estate agent’s commission?
The agent’s commission is taken from the sale price of the home, so this can be looked at in two different ways. First, because the seller is paying the commission from the proceeds of the house, the seller is technically the one who pays the real estate agent’s commission. But the second way to look at it is that the buyer does pay it in a roundabout way.
Weidenhoft says that the commission “is a part of the purchase price of the property, but the buyer isn’t paying any extra fees for an agent’s commission.”
When do real estate agents get paid?
Weidenhoft says that a common misconception is that people think real estate agents get paid when they write the offer or the offer is accepted, but in fact “we only get paid once the house sale closes and that isn’t until typically 30-45, even 60, days after an accepted offer.”
How much do real estate agents actually make?
While the prospect of a 6 percent commission may sound great, the reality is that real estate agents may not get to take home all of it. Agents typically work under a brokerage that will actually receive the commission and then split it with the Realtor. But it doesn’t end there.
They will also split the commission with the buyer’s agent’s brokerage who will take a percentage before sending the rest to the buyer’s agent. Often, the split is 50-50 between the seller’s agent and buyer’s agent’s brokerages and then they split their share with their agents.
So using our earlier math based on the median price of U.S. homes, the commission would be split like this:
$403,000 x 6% = 24,180
$24,180 x .5 = $12,090 would go to each brokerage
$12,090 x .5 = $6,045 would go to each agent
Using this math, a real estate agent would have to successfully market and sell or help buyers purchase eight homes per year to achieve their median salary.
Knowing this information can help you figure out how much your agent gets from your home sale, and what the standard amount is.