As a real estate agent, your success depends largely on how well you market yourself to potential clients. More agents give up before they even begin because they don’t know what kind of compensation their services will command for sale or rent of a home.
Some agents get paid more than others depending on a variety of factors- but none of them include being honest with customers about fees!
In this article, we’ll go over some common types of real estate agent commissions and why it is important to be upfront about them. We’ll also talk about some tips to increase your takehome pay as an agent.
Realtor Compensation Models
There are several different models used to compensate real estate agents in regards to bringing in business. Some make sense and are worth it, while others seem too good to be true. It is important to understand all of them so that you can pick which one makes the most sense for you.
Here are the three main compensation models for real estate agents along with reasons why they are either very expensive or not dependable.
The Commission Only Model
This is probably the least dependent on any other model. The commission only model doesn’t use any type of intermediary such as a broker or lawyer. This means that there isn’t anyone else who gets a cut of the profits from your efforts. You could potentially earn a large income, but only if enough people list their homes with you.
When listing an agent receives a fee in addition to the sale price
As mentioned earlier, when agents list your house for sale they are paid a listing fee. This is typically done per agency policy and depends on how much competition there is for the home being listed.
Agents also receive another fee from the seller after the property has sold- this is called the sales commission or closing commission. The amount of these fees varies depending on whether the agent you pick is directly hired by the sellers, direct employees of the selling company, or works for a broker. Brokers get a percentage due to them, which can add up quickly!
Brokerages will usually take care of negotiating these contracts for you, but it is important to know what types of agreements each party holds themselves liable for before signing anything. It is very common for buyers to sue their own representatives over mismanagement of funds or wrong assumptions made during negotiations, so be aware of who is protected under the law.
When you list your home with an agent, they may ask you to pay a listing fee
A listing fee is used as a pretense for the agents’ expenses. The cost of these fees are not necessarily paid by the homeowner, according to reports. Some of these costs include paying mobile phones, monthly subscriptions or even credit cards that get billed to the agency so they can say that the bill was business related.
Another fee that is often concealed from sellers is the sales agents’ commission. This is how much the agent gets paid when their client lists the house with them and this is also where most of the earnings come in for real estate professionals.
The higher the sale price of the property, the higher the commissions that agents earn. While some agencies have fixed rates for each price range, others have non-negotiable rates which depend on what kind of seller they represent and what area they cover.
The agent may get a commission from the sale
When an investor or homeowner lists their home, they will often hire a real estate agent to help them find a buyer or seller. This is called listing your house with a professional!
Agents are typically paid either a 6% sales commission or a 2-4% buyers’ agents’ fee depending on whether it’s a sellers’ agent or buyers’ agent, respectively. The difference in fees depends on if there is already a lead attached to the property that the agent can use as a source of income.
There are also other sources of revenue for agents. For example, they might be paid to do research on houses similar to or like yours, to advise you on price and features, or to handle negotiations with potential buyers or sellers. These services are not part of the selling process but rather marketing tools to draw in new business.
Some agents keep 10%-20% of the money people give to pay them for the agent’s service. That way, the agent makes more profit without taking a loss on the transaction.
The agent may get a commission from the purchase
As mentioned before, agents are paid either by you, the buyer, or the seller. If the seller pays the agent, it is usually called representing the seller. Representatives for sellers typically get a percentage of the sale price that the property sells for. This can be done either directly or through an intermediary.
If the buyer hires the agent, it’s referred to as agency selling. An agency contract will set out how much the agent gets paid and when. Agency contracts are always more favorable to the agent because they take away some of the risk they would bear if buying or selling a property themselves.
Agent costs — which include things like fees, closing expenses, advertising, brochures, flyers, etc.—are not reimbursed by the seller, so these have to be factored into their overall compensation. Many agencies cover part or all of these with “production budgets” that vary per agent.
How real estate agents earn extra money
There are many ways agents make additional income beyond just sales. Some do marketing and recruitment for agents, while others write articles or books about different aspects of being a real estate agent. Others start up business ventures related to houses, such as house flippers or home staging.
More entrepreneurial agents create apps, sites, or other tools to help people in the housing market. These could be anything form online listing services to simple calculators.
The agent may get a commission from both the sale and the purchase
As mentioned earlier, agents only earn their fees when there is a transaction or closing. This can be done either by them representing you as the seller’s agent and helping them find a home to buy or they could represent you as the buyer’s agent and help you find a house to live in.
The difference between these two types of agents’ fees depends on whether one party ends up buying or selling their property and what type of agency representation they choose.
For example, if an agent represents you as the seller’s agent but you end up purchasing your own property then they will not receive a commission. On the other hand, if they represent you as the buyers agent and you sell your property and buy another, they will still get paid.
The agent may get paid in different ways, depending on the company
As mentioned earlier, most real estate agents are not paid by the listing-to-buyer ratio of their agency. They are instead paid per transaction made (or closed), or via commission on the sale price of the property they represent.
There are also some who are commissioned on both fees, such as when buying or selling a house becomes more expensive due to legal expenses that need to be covered. These additional costs are usually done through third party vendors, but the agent is still compensated for it.
Another way many agents make money is by getting a “backend” bonus, which comes with each transaction they close. This includes everything from cost-effective home loans to finding an appropriate rental apartment or house for their client.
Some companies will reward their agents with discounts and/or coupons for goods and services related to their business, making it more affordable for them to run their own homes.
There may be other costs for the agent
As mentioned earlier, one of the main ways that agents are paid is through their sales commission. But what most people don’t realize is that not all states pay sales commissions!
In fact, in some cases it can even cost the seller an extra fee to sell their home with this particular agent. This could definitely hinder your financial success as a homeowner or buyer.
So how do these fees work? And which ones apply to you as a potential property owner or buyer? Let us discuss.
There are many different types of contracts
As mentioned earlier, there are several different contract types that real estate agents use to represent their clients. Some of the most common include listing agreements, sales agency agreements, service agreement, buyer representation agreements, and sale representative agreements.
A listing agreement is typically used when an agent has a property they are trying to get sold. They will sometimes refer to this as “listing contract” or just “contract for selling.” This type of contract usually does not have any deadlines, so it can drag on for weeks or months if needed.
Agents who work under a services agreement typically earn more than those who are hired as representatives because they are paid per transaction completed (or almost completed). This could mean getting you into house hunting or finding you your next home!
As with any profession, there are always things that come up in business. When these happen, agents often find ways to negotiate payment themselves. These may be through doing more work without pay, asking to be compensated later, or even taking time off with pay.
What about when agents need money? Many times agents will submit expense reports to their employers which ask for reimbursement. Most companies cover at least some of these fees but never all of them, and it really doesn’t hurt to ask.