How to Pay the Real Estate Agent


Many homebuyers are unaware of how real estate agents are paid, and how the process works. Aside from the obvious office furniture and copy machines, the vast majority of a real estate agent’s earnings come from the commission fees that they are awarded for each property transaction. As a result, a common myth is that the real estate agent is “paid by the buyer.” While the commission is technically a fee that the home seller pays to the real estate agent, the actual payment comes from the listing price of the property itself at closing, meaning that the buyer foots the bill.

The most common real estate agent compensation model involves a percentage of the final sales price of the property. The percentage is based on the total value of the property after credits, taxes, inspections, and other costs are applied to it. It is typically split between the listing broker and the buyer’s agent, though this can vary. A common agent/broker split is 70/30 or 60/40, but more experienced agents can receive a higher percentage of the pie. Read more

The reason why the buyer covers the buyer’s agent commission is because the agent helps them find and purchase the home. Since they are the ones doing all of the work, they should be rewarded for their efforts. Plus, buyers already have to pay a lot of out-of-pocket expenses when buying a home: earnest money, down payments, mortgage loan application and underwriting fees, home appraisals and inspections, and closing costs. Adding on another 2.5-3% out-of-pocket expense to cover the real estate agent’s fee could disincentivize them from purchasing the home altogether.

It’s also worth noting that commission rates are negotiable, even for established professionals. The more homes an agent sells, the higher their income, and they might be willing to negotiate on commission percentages if they have a client list that is already full.

When determining how much to charge, it’s important to think about the average sale prices of similar properties in your area. That will help you determine a target final sale price and the total amount of the commission that should be taken out at closing. Your real estate agent can provide a comparative market analysis to help you come up with this figure.

It’s also a good idea to talk with your agent about other potential ways that you can help them get the business, like paying for additional marketing materials or offering to take photographs of the property. As a bonus, working with a professional you really enjoy can make the entire selling process more enjoyable for everyone involved. If you can come up with a unique way to boost your agent’s sales volume, it’s possible that they will be more than happy to work with you. Just remember that it’s against federal antitrust laws for members of an industry to collude and impose uniform commission rates on each other. So don’t be afraid to ask for a lower rate than the one that you see listed on their business cards!


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