How do real estate agents get paid?

How do real estate agents get paid? And How much do real estate agents make?

Current Process for Paying Commission

Up until now, sellers generally paid their agent’s brokerage a percentage of the sales price, ranging from 4-6%, for marketing and selling their home. A portion of this, usually 2-3%, would go to the buyer’s agent’s brokerage to represent the buyer.

The buyer’s agent’s commission amount was public knowledge, displayed on the MLS (Multiple Listing Service), and was agreed upon between the seller and their agent when signing the listing agreement. However, this compensation method is going away due to the lawsuit, and now both parties (buyers and sellers) will be responsible for paying their own agents.

Changes for Sellers and Buyers in 2024

Seller Changes 2024

Sellers will still hold formal listing appointments to plan the sale of their homes. However, they will only be responsible for negotiating and compensating their own agent, which is likely to land between 2-3% in most areas.

Buyer Changes 2024

Buyers must now have a formal consultation with their agent to go over services, and compensation expectations, and sign an agreement before even looking at homes or submitting offers. Buyers are expected to compensate their own agent for services, typically landing between 2-3% of the purchase price.

Requesting Concessions & Negotiating Commission

Sellers can still offer concessions to cover the buyer’s agent’s fees, and buyers may request this in their offers. If the seller agrees, it could help attract more buyers, as covering agent fees makes the home more competitive. The amount of concession is now privately negotiated in the purchase agreement.

Buyers can request that the seller cover their agent’s fee by checking a box in their offer. The buyer’s agent will send over the agreement outlining the compensation they expect. The seller may accept, counter, or reject the request. If the seller declines to offer the concession, the buyer can either back out or pay their agent directly.

Summary

To sum it up:

• Buyers and sellers are now responsible for paying their own agents.
• Sellers may still offer concessions to cover buyer agent fees.
• Buyers must sign an agreement with their agent before looking at homes or submitting offers.
• Sellers can privately negotiate concessions for buyer agent fees in the purchase agreement.

How Do Real Estate Agents Get Paid?

As a buyer, you are typically not responsible for paying your real estate agent. This is because the seller’s funds cover the payment for your agent. Let me explain how this works.

Seller Pays the Agent’s Commission

When a seller lists their home for sale, they typically work with a real estate agent. The seller and the listing agent agree on a compensation structure, which is usually a commission based on the home’s sale price. All real estate agents, including listing and buyer agents, are typically paid on commission, meaning they only get paid when a home sale successfully closes.

For example:

• A seller lists their home for $300,000.
• They agree to pay their listing agent a 6% commission, which equals $18,000.

If the listing agent finds the buyer, they earn the full commission. However, if the buyer is represented by another agent, the listing agent agrees to share this commission.

Commission Split Between Agents

In most cases, the 6% commission is split between the listing agent and the buyer’s agent, with each receiving 3% of the sale price. This is how you, as a buyer, can have representation without directly paying your real estate agent. The listing agent shares their commission with your agent.

Buyer Protection and Representation

Even though the money comes from the seller’s side, as a buyer, you are still protected. Real estate agents are fiduciaries, meaning they are legally obligated to act in their client’s best interest. Whether they are representing the seller or the buyer, their responsibility is clearly outlined in their contracts.

If you ever feel that your agent isn’t acting in your best interest, you can contact their broker or your state’s real estate commission to file a complaint.

Administrative Fees

Some agents may charge administrative fees upfront. These fees are generally for covering the agent’s expenses during the home-buying process, particularly if the deal doesn’t go through (due to reasons like financing falling through or a change of heart). Not all agents require this, so it’s important to review your contracts carefully.

Conclusion

Now that you understand how agents get paid, you’ll know what to expect when you work with a real estate professional. Always read your contracts carefully to ensure you’re aware of any administrative fees and the commission split.

How much do real estate agents make?

Real estate is an attractive career for many due to its flexibility and potential for high earnings. But how much do real estate agents actually make? According to the National Association of Realtors (NAR), the average full-time real estate agent earns about $83,000 per year. However, this can vary greatly depending on experience, location, and the type of real estate they specialize in.

Average Earnings of Real Estate Agents

As mentioned, the average full-time agent earns $83,000 annually, but this is just a general figure. Agents with more than 16 years of experience can almost double that income, while some agents may struggle to earn even $40,000 per year working full-time. Clearly, the amount of money an agent makes depends on a variety of factors.

Real Estate Earnings by State

The NAR provides data showing significant variation in real estate earnings based on location. Agents in New York State, for example, make more money on average than agents in any other state. A typical agent in New York earns around $111,800 per year, with top agents and brokers in New Mexico slightly surpassing this at an average of $112,000 annually.

Sellers vs. Buyers: Choosing Your Focus

To maximize earnings, agents often decide whether to work primarily with sellers or buyers. Each group presents its own set of challenges and opportunities.

Working with Sellers

When working with sellers, an agent’s primary responsibility is to help them prepare the property for sale. This involves ensuring the property is in top condition and marketing it effectively. Agents working with sellers must guide their clients through tasks like renovations, repairs, and home staging, aiming to sell the property for the highest price in the shortest time.

Working with Buyers

On the other hand, agents working with buyers often spend considerable time showing properties. To be effective, they need to familiarize themselves with different properties, neighborhoods, schools, and mortgage options. A crucial skill for buyer’s agents is navigating the mortgage process, as most buyers finance their purchases.

Increasing Your Average Price

Another way to increase earnings as a real estate agent is to focus on higher-priced properties. Since agents typically earn a commission based on the property’s sale price, working with more expensive homes means higher pay. For instance, selling a $400,000 home will yield much more in commission than selling a $100,000 home. Some agents even jump straight into selling million-dollar homes, significantly boosting their annual income.

Why Some Agents Fail

It’s important to note that while the potential for high earnings exists, not every agent succeeds. In fact, 80% of real estate agents fail to renew their licenses. A key reason is that they fail to specialize or master the skills needed to serve either sellers or buyers effectively.

Conclusion: How to Succeed

To truly succeed as a real estate agent, focus on mastering the skills needed for your chosen client base, whether it’s sellers or buyers. Aim to work with higher-priced properties to increase your commissions, and stay up to date with trends in the housing market. With dedication, it’s possible to turn real estate into a six-figure career.

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