As mentioned earlier, not every real estate agent is given a commission when their efforts result in a sale. Some agents are paid by the seller to represent them, some are paid by the buyer to represent them, and some get a combination of both!
There are also what’s called incentive-based marketing agents who are compensated for bringing in business to your company. These agents are sometimes hired by sellers or buyers to use their skills to promote a property listing or house tour, respectively.
But how do these other types of agents make money? This article will go into more detail about how they are paid. Read on to learn all of the different ways agents earn revenue!
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General Information About Agent Fees
This section of our website contains general information pertaining to agent fees. If you have any questions as to whether or not this information applies to you, you can refer back to this material.
Cost to the buyer or seller
As mentioned before, agents are paid through fees from either the buying or selling party. The fee is typically determined by how much property an individual agent represents, what kind of properties they have under contract, and their proximity to the sale.
Agents that represent the highest number of homes make the most money because there are more transactions happening in their area, thus creating higher revenue for them.
For sellers, the cost depends on whether they use a direct-to-marketing agent or not. If they do, then their costs include the commission they pay the agent. For some sellers, these additional costs can be substantial!
If a seller uses my team as their agent, I negotiate lower commissions (the price I get paid) but I also retain control over which houses I list and sell, and I don’t need to advertise or market the home. This means I spend less time marketing and advertising our listings and me and my colleagues are able to focus on finding the next house we will promote.
Transaction costs
A real estate agent’s main job is to get you the best deal on a home, but they are also paid for their time when this happens. When an agent finds a house that meets your criteria, she will have to negotiate with the seller on how much her commission will be!
This can cost the seller a lot of money, which is why it is important to find an agent who does not require a high commission. There are ways to work around this though, such as having a competing agency broker-rate the property instead of offering a fixed number like most agents do.
Another way to lower transaction costs is by buying or selling through a professional organisation rather than individual sellers or buyers. The two most common organisations are REI (Real Estate Institute) and ARIA (Association Of Realtors). Both of these have minimum requirements to become a member however, so make sure to check out both brands before deciding if they are right for you.
Marketing costs
As we mentioned before, marketing to find your home sale or rental property includes things like listing presentations, showing properties, going door-to-door, posting pictures and advertisements of your house online and in magazines, etc. All of these cost money!
Some people make an assumption that because agents are paid per transaction they’re always trying to get you to buy a new car or send them lots of money for advertising so they can keep their expensive boat or private jet. This is not true at all!
Agents spend time planning and executing strategies to find your next house just as much if not more than buying a mansion! Agent fees cover everything from paying for ads, research, photography, staging and property showings.
And remember, even though they’re hired to do a job, some agents take extra steps to be friendly, professional and go above and beyond what’s asked of them. These agents may work harder to win your business than someone who doesn’t put in as much effort.
Service quality
As we have discussed, one of the main reasons people purchase a house is because they want to own a home. With this comes the opportunity to show off their wealth by owning a beautiful house with lots of rooms and an outdoor pool!
However, buying a house isn’t just about looking pretty, it’s also about finding your dream home, which can be quite difficult if you don’t know where to look or who to trust. Finding a good real estate agent is like finding a good doctor — someone that does his/her job well and goes above and beyond what should be expected.
Agents do not get paid based on how many houses they sell, but instead focus on providing excellent service to their clients. They will go out of their way to meet you, talk about your dreams and goals, and find you the perfect home fit.
Agents are also very social beings so they typically spend time talking to other agents as well as meeting with prospective buyers and sellers. All of these things take away from their workload and therefore pay.
Some agencies offer rewards systems such as gift cards for customers, but these aren’t always common and only apply to certain types of agents. What everyone needs to understand though, is that unless you actively work to avoid it, being a great realtor takes a lot of effort no matter what type of agency you join.
Sales volume
As mentioned earlier, most real estate agents are paid through sales commissions. When you sell a property, your agent gets a percentage of that commission as their pay! The larger the sale, the higher their paycheque is.
The more properties an agent sells, the higher their overall earnings are. This is why it is so important to have successful selling experiences – not only do they earn more money, but also it creates longer term income for them.
Sales volumes are a good way to determine if an agent is overpaid or underpaid. If they make enough money per sold house, then they are probably giving great service and deserve their reward.
However, if they seem to be struggling to make a living, then chances are something may need to change. You can help ensure they get the right amount of compensation by becoming familiar with the different types of fees that real estate agents charge.
Do they work with a broker?
As mentioned before, not all real estate agents are paid in direct proportion to how many houses they sell or what kind of fee they charge for their services. Some agents choose to represent only one company that pays them a monthly retainer, while others do not have a firm paymaster.
Agent fees are usually split into two parts – marketing costs and listing service fees. Marketing costs include things like website design, social media advertising, printed materials such as brochures and flyers, and phone calls to potential house buyers about the agent. Listing service fees include charges for posting properties online (brokerlistings.com, zillow.com, etc.), taking pictures and videos of the property, doing research to determine market value, creating a business plan, sending out generic “For Sale” signs, and more.
These additional fees are typically not part of the direct sale commission, but instead are negotiated between you the seller and your agent. The difference in cost is dependent on whether your agent works directly for the company they are representing, or if they are an independent contractor who can negotiate lower listing fees for themselves.
Do they work with a lender?
As mentioned earlier, as a real estate agent you will need to have a source of income. This is typically done through one of three ways: your own savings, loans from lenders, or selling products (such as insurance) that pay for themselves.
Most agents start out using their savings or money they earn doing other things to fund their business. But it’s not too early to begin looking into alternative sources of funding.
Alternative funding options include talking to banks about providing you with a small loan, working as an affiliate marketer where you get paid per referral, or investing in the up-market property management software solution that can help you run your business more efficiently.
