As real estate agents, we are paid to sell houses! This is one of the main reasons why most people choose this career path. As you know, however, not everyone sells homes and that’s okay!

Some individuals who want to be real estate brokers or salespeople take great pride in helping others achieve their dreams of owning a home. These professionals go out of their way to teach potential clients about buying and selling properties and getting the best deal on a house.

They will talk with you about market values and how to assess whether a property is a good investment. They may even help you find your dream home or tell you where to look.

However, although they’re passionate about real estate and educating other people about it, what many professional Realtors don’t tell you is that they also earn a commission when you buy or sale a property.

What is a seller’s agent or a buyer’s agent?

how does real estate commission work

A sellers’ agent is someone who works for your (the seller) by acting as a representative to negotiate on your behalf with other individuals, usually referred to as buyers, that are looking to purchase a home.

A buyers’ agent does the same thing for potential house buyers – they represent you in finding and negotiating on their behalf with prospective homes.

Typically these agents get paid a commission from both the seller and the buyer of the property being represented. This is why it is important to choose an experienced agent that you trust will work hard to protect your best interests.

What are the different commission rates?

how does real estate commission work

As mentioned before, agents get paid two main types of commissions: listing and sales. The difference is determined by how the home sells and what stage it goes through during that process.

If an agent earns 6% for selling a house, they will earn six percent of the sale price for each person who helped bring about the sale. This includes the seller, the buyer, other real estate agents, and any third-party resources such as lenders or inspectors.

The percentage of commission also varies depending on whether the agent is in charge of the listing or the property’s sale. For example, if Agent A lists a house and Agent B sells that house, then Agent B gets paid one full year’s worth of their commission (one year being twelve months plus the time it takes to sell the house).

That means Agent B only receives the remaining portion of their commission after one whole year since they didn’t actually close the deal. Agents usually receive this additional money at the end of a contract, but some firms won’t pay it until much later.

What are the different commission structures?

how does real estate commission work

As mentioned earlier, there is no standard way to be paid as a real estate agent. Some make you earn more money with each transaction, while others pay according to how many transactions you close.

The most common type of compensation for agents is called direct seller compensatoration or DS (for short). With this system, your earnings depend on how many sellers you bring in to sell their home. The amount that you get per sale depends on two things: the house price and the number of days it takes to find a buyer.

The second kind of commission structure is called indirect seller compensatorion or IS. Here, your income comes not from bringing in new homes, but instead from getting paid by the buyers you already have.

With both types of compensation, the more houses you close, the higher your paychecks will be. Both of these systems were discussed in detail in our article about why being a real estate agent isn’t necessarily easy.

How is the commission calculated?

how does real estate commission work

In order to determine your real estate agent’s commission, you have to understand how it is calculated. The two main factors in calculating commissions are sales price and property value.

The sale price is simply what each individual party agrees to pay for the house. This includes both buyers and sellers. If everyone comes together and negotiates down on the purchase price, then the broker gets a lower commission.

However, if the seller goes up on their asking price or the buyer does not negotiate as low, then the broker earns a higher commission.

This can get tricky because sometimes the market values of houses go down instead of up! Due to this, brokers do not always earn a flat fee per person involved in the transaction.

Instead, they are paid an additional amount called the “overlisting percentage.” This is due to the fact that there may be other agents working with the same listing. It is the job of these other agents to find you the home and bring you into the selling process, so they receive a percent – usually around one to four points -of the commission earned.

Does the commission change based on the sale price?

how does real estate commission work

A lot of people get confused about how real estate commissions work because they do not understand what factors affect them. The most common misconception is that the higher the sales price, the lower the commission. This is false!

As a matter of fact, the opposite is true! The bigger the house, the more money agents make in fees- this makes sense since agents are paid per sold square foot. Therefore, the larger houses require longer hours for an agent to sell, which gives them a higher income.

Another factor that can greatly influence your commission is if the seller backs out or refuses to accept a counteroffer. If this happens before you close escrow, then the broker does not get their fee either.

What if there are multiple offers?

how does real estate commission work

Even though you may have the highest price, offered down or with no money, you still need to consider how many other people want your home!

There is an easy way to figure this out. A professional would be able to tell you what percentage of the sales price each person’s offer represents. But for now we will use something simpler: how much commission they payed.

The bigger their offering amount, the more money they make in profit! This isn’t always the case however because some agents don’t include all of the fees in their costs (more on that later).

Also, while it sounds crazy, not everyone wants our house even slightly. Some love it and will spend lots of money to own it!

By taking these things into consideration, you can determine whether or not it makes sense to accept lower bids so that you get more homes, or just focus on one and try to sell it yourself. It really depends on what you hope to achieve and what kind of agent you want to be.

How do I get my real estate agent?

how does real estate commission work

Even though it may seem like there are never enough hours in the day when you’re investing, a lot of people make too much money off of other people’s hard work. As such, most major brokerages have an agency model where they take care of all the tedious tasks so that you can focus on what you love — helping others find their dream home!

By working with a professional firm, the best brokers will actively seek out clients to represent them. Some firms even pay marketing companies to advertise for your potential representative (more on this later). This way, his or her career is supported without needing your business directly.

There are many ways to find your ideal real estate agent, including through direct referrals, advertising, social media, and interactive events. Each method has its pros and cons, so think about which ones would be the most effective for you before choosing one.

What are some tips for working with your real estate agent?

how does real estate commission work

As mentioned earlier, his or her commission is dependent on you being able to sell your home and get top dollar. Therefore, it makes sense that having a great relationship with your agent is important.

That means showing up regularly, responding to their comments and questions politely, and keeping them informed of what’s happening with the house. They will go out of their way for you, so make sure you return the favor!

Another tip is staying organized at all times. This includes arranging showings, gathering documents, and making copies- everything in order can help ensure a quick close.

And lastly, keep in touch after the sale. Let them know about any changes you may want to make or things you learned during the process. These people who work hard for you deserve this respect.


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