I received an e-mail asking me how Real Estate Agents were compensated for their services.
Real Estate Agents (Salespeople) work on commission. Salaries are rare in the residential resale business. This commission is typically a percentage of the sale price of the home being sold. The agent gets paid when the sale goes through. If a deal doesn’t happen, the agent makes nothing.
In a conventional home sale, the seller pays the commission. The commission range is usually between five and seven percent of the sale price. The seller's broker typically shares the commission on a 50-50 basis with any other broker who finds a buyer for the property. There is usually another commission-splitting arrangement that occurs between the brokers involved and the agents who work for them.
What does this look like? Let’s say you are selling a house for $200,000 and you have agreed to pay your listing broker six percent of the sale price as compensation for completing the sale. The commission in this case is $12,000. If another broker is working with the buyer for your house, that broker will receive $6,000 at closing, leaving $6,000 for your broker.
Any expenses and overhead are deducted before the agent gets paid. Overhead includes such things as the cost of running the office and advertising properties. So by the time your agent actually gets paid, it's likely not to be anywhere near the six percent you agreed to pay for his or her services.
Also, agents incur personal expenses as a cost of doing business. Typically these expenses include such things as a car, gasoline, a computer, access to the Multiple Listing Service, and insurance, to name a few. Agents are also responsible for paying their taxes and medical insurance.