Quick and Dirty: How Real Estate Agents Get Paid
I’ve had many people ask me how I, a real estate agent, make money. Actually, they’ve asked me questions like how much I cost, what my hourly rate is, or when during the home buying/selling process they will need to pay me.
This made me realize that the compensation of a real estate agent is one of those elusive, mysterious topics that is rarely explained to the general public — that is, until a person goes to buy or sell a home. This mysteriousness doesn’t make sense to me — the home buying/selling process should be straightforward, and agents should openly communicate ALL pertinent information to their clients/prospective clients. I do believe that how the agent gets paid falls under the category of pertinent information. Hence, my attempt to break this topic down for you.
- Listing agent: In Northern Nevada, when a house is sold, between 5% to 6% of the purchase price goes to the listing agent. The listing agent is the agent for the seller of the house — the agent with his or her sign in the seller’s yard. This percentage is decided at the very beginning of the sale process, before the house is put on the market, and is included in the contract between the listing agent (more precisely, the listing agent’s real estate brokerage) and the seller.
- Buyer’s agent: Half (2.5%–3%) of the selling agent’s commission goes to the buyer’s agent — the person who helped the buyer search for and purchase the house. So the listing agent and buyer’s agent split the 5%–6% of the money paid to the seller for the purchase of the home.
- Amount actually paid to each agent: Both the listing and buyer’s agent does not usually get 100% of the 2.5%–3%. This is because the real estate brokerage gets a percentage of the 2.5%–3%. The percentage of the 2.5%–3% actually paid to the agent is negotiated between the agent and the brokerage when the agent joins the brokerage. The amount the agent gets vs. the amount kept by the brokerage is typically referred to as the split. This split differs depending on the agent and the real estate brokerage. For instance, a new agent might have a 50%–50% split while some more seasoned agents have negotiated a 95% split with his or her company. So from the 2.5%–3% of the purchase price, the listing and buyer’s agent gets a percentage of that amount based on what their brokerage agreement says.
- NOTE — NO MONEY IS PAID TO ANY AGENT UNTIL CLOSE: When a buyer asks an agent to help them set up a home search, take them to see houses, draft offers, negotiate a sales price, guide/coordinate the escrow, etc., the buyer’s agent does not get paid. Similarly, when a seller signs a contract with the listing agent to sell the seller’s home, the seller does not get paid. On both sides, it is not until the escrow goes smoothly and the home sale actually closes that an agent sees a single penny. When the home sale closes, the money owed each brokerage is distributed to the brokerages by the escrow officer at the title company. Then, the broker at the agent’s company cuts the agent a check, giving them a percentage of the 2.5%–3% based on that particular agent’s split (see above).
In sum, for each home sale, the listing agent and buyer’s agent gets paid a percentage of half of 5%–6% of the purchase price of the home only if the home sale transaction closes. Hope this helps!