How Do Real Estate Agents Get Paid?
Most people choose to work with a real estate agent when buying or selling a house. Unlike an hourly or salary employee, a real estate agent doesn’t get paid based on their work hours. Real estate agents at traditional brokerages are independent contractors and get paid on a commission basis. The commission they earn is a percentage of the home’s purchase price. This differs from how Redfin agents are paid, which we’ll dive into a bit later. First, let’s take a closer look at how real estate agents get paid at traditional brokerages.
Who pays the real estate agent?
Typically, the real estate agent is paid when the home purchase closes – when the money for the sale changes hands from buyer to seller. The commission payment is usually a cut of the sale price from the seller’s home sale proceeds. The seller and their agent may even take commission into account when they set the initial listing price of the home. The buyer usually doesn’t have to pay commission, though they still need to pay closing costs.
A common commission range is 4–6% of the contracted sale price, split between the seller’s agent and the buyer’s agent. For example, if a home sells for $300,000 with a 6% commission, the total commission earned would amount to $18,000 and typically split 50/50 between the two agents.
The average sale price across the U.S. housing market was $376,278 in January 2022. At a rate of 6%, the commission paid on the national average sale price has been about $22,500.
How is the real estate agent commission set?
The commission rate on the sale of a home is negotiable. While a 4-6% commission rate has been typical for many years, some brokerages have moved to a flat fee arrangement, and others offer discounted rates.
Commission pays the agent for their services throughout the home buying or home selling process. Real estate deals fall apart daily due to lengthy negotiations, contract issues, a missed time frame for repairs, or failed inspections, among other reasons. Seasoned real estate agents have the expertise to navigate these issues and help you close the deal on time.
How does a real estate agent earn their commission?
The job of a real estate agent is to help buyers and sellers navigate the complexities of a real estate transaction. They ensure all real estate transactions close with their client’s best interest in mind while complying with all the laws and regulations.
A seller’s agent is responsible for:
- Researching comparable home sales
- Help identify home improvements – and recommend service providers – to help to increase home value
- Determining a list price strategy
- Developing a marketing plan to sell the home
- Lists your home in an MLS database
- Receives, reviews, and negotiates offers
A buyer’s agent is responsible for:
- Helping clients find homes on the market that meet their criteria
- Touring properties with their clients
- Offering guidance in writing the best offer
- Submitting offers and negotiating
- Coordinates access to the home for things like inspections or appraisals
What are commission splits?
Real estate agents must be licensed through a sponsoring broker. Only the broker can receive commission payments. For most brokerages, this means the broker and real estate agent have a commission split agreement. Common agent/broker splits are 70/30, 50/50, or 60/40 for a typical transaction. Newer agents may only receive 30%, while more experienced agents who have a strong record of successful transactions and high sales volume will be able to negotiate a higher split with their broker.
Rather than splitting the commission with their broker, some agents pay a “desk fee” to their brokerage and receive 100% of the commission. At Redfin, there are no commission splits or desk fees. Redfin Agents earn a salary plus bonuses instead of commission.
What percentage commission do real estate agents make?
As an example, for a commission of 6% on the entire transaction, an agent’s actual earnings will come out to 1.5–2.1% of the purchase price. At the average purchase price of $376,278, the agent would receive between $5,644–$7,900 for that transaction.
The 6% commission can be split among up to four parties involved in the transaction:
- the listing agent
- the listing agent’s brokerage
- the buyer’s agent
- the buyer’s agent’s brokerage
The brokerages receive their commission payout at closing, typically a 50/50 split. Then the brokers pay the agents following the commission terms specific to their agency.
In a transaction where one side doesn’t have an agent representing them, the commission rate may be lower because fewer parties are involved. Although not common, in some cases, the buyer’s agent is also the listing agent and becomes a dual agent, representing both the buyer and seller. This situation is called dual agency and may involve a lower commission rate than a typical four-party transaction.
Every state requires a dual agent to disclose to the buyer and seller that they are representing both sides of the transaction and get approval beforehand. Each state has its own laws around dual agency, so it’s important to look into your state’s regulations before signing any dual agency agreements. Dual agency is illegal in Florida, Colorado, Kansas, Wyoming, Alaska, Vermont, Maryland, and Texas.
How much do real estate agents make per sale?
The amount real estate agents earn per sale depends on their commission split with their brokerage and the price of the homes they close. If we take the national average selling price from January 2022 – $376,278 – at a 6% commission amount of $22,500, each broker would earn $11,250.
For an agent with a 50/50 split, their commission would be $5,625. With a 60/40 broker-agent split, the broker would get $6,750, and the agent would get paid $4,500. In a 70/30 split, the broker would earn $7,875, and the agent would earn $3,375.
According to the U.S Bureau of Labor Statistics, the median annual pay for real estate agents was $48,930 in 2019. For brokers, the figure was $59,720. Top producers, the highest 10% of agents, earned more than $111,800 in 2019, while the top 10% of brokers made upwards of $178,720. However, these compensation levels vary greatly in different regions due to the cost of housing also being very different. For example, the median sale price for home in San Fransisco is nearly $1.5 million, whereas in Atlanta, GA the median sale price is $405K.
Here’s a table that shows commission amounts at different sale prices:
If you’re wondering how much you could make when you sell your home based on the sale price and while factoring in agent commission, use a home sale proceeds calculator to get an estimate.
When are real estate agents paid?
Agents are typically paid on closing day, which may happen within weeks or sometimes take much longer. Before the home seller receives their proceeds from the sale, the title company will pay each brokerage their portion of the commission. These funds come from the buyer who is purchasing the home with a loan, cash, or some kind of combination of funds.
The agent’s agreement with the broker will specify their share of commission. Since most real estate payments are held in escrow, they’re available for immediate wire transfer between banks, brokers, and agents, typically on closing day.
If a seller is not represented by an agent, the buyer may request the seller pay their agent’s commission in the purchase agreement. Usually, the commission is lower in this type of deal than the total commission paid if the scenario involves a buyer’s and seller’s agent since only one agent needs to be paid.
If no agent represents either buyer or seller, there’s no sales commission. In that case, the buyer or seller will often hire a real estate agent, broker, or attorney to prepare documents for closing. The attorney would also handle the funds for the purchase and closing. The fee for such services can range from several hundred dollars to over $1,000 in some situations.
How Redfin agents are paid
Traditional brokerages pay their agents solely on commissions, as outlined above. However, Redfin Agents are considered employees. They earn a base salary and receive a bonus on every home sale or purchase they close. This takes the pressure off to make the home sale and instead, focus entirely on what the customer wants.
The median pay that Redfin agents earned in 2020 was $112,000. A first-year agent at Redfin earned an average of $63,000, $13,000 more than the annual agent income reported by the National Association of Realtors.
A Redfin agent’s bonus amount is tied to the price of the home. About 30% of their pay is the base salary for first-year agents, and 70% comes from transaction bonuses. As agents grow their business at Redfin, they’ll earn more from bonuses.
At traditional brokerages, expenses like membership dues and marketing costs can quickly increase the cost to be a real estate agent. Redfin, however, covers MLS dues, license renewal fees, marketing costs, and more, saving each Redfin agent $14,000 on average every year. Redfin agents are also eligible to enroll in medical, dental, and vision plans, and get benefits like paid vacation, parental leave, and 401(k) retirement plan, and more.
LEGAL: Real estate commission is negotiable.
Annual gross income for Redfin Lead Agents includes salary, bonuses, and stock-based compensation for the full 2020 calendar year and is compared to the median Realtor(R) income, per the NAR 2020 Member Profile.
Average income for first-year Redfin lead agents included agents who worked a full and consecutive 12 months between Jan. 1, 2017 and Jan. 27, 2021. It is an average of what first year agents received in their paychecks within the first 12 months of work at Redfin based on their own start date.
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