Content of the material
- Real estate agent salaries
- What If I Can’t Afford Closing Costs as a Seller?
- Don’t Break the Bank
- Alternatives to using a real estate agent or Realtor
- How Much Do Real Estate Agents Make?
- How to avoid paying Realtor fees
- Is Hiring an Agent Worth the Cost?
- A Typical Agent Payday
- Who Actually Pays The Agent?
- Do Real Estate Agents Make a lot of Money?
- Pro Tip:
- How commissions have changed over the years
- Other Pay Models
- What Do Closing Costs Include?
- The Bottom Line
- How Do Agent Commission Splits Work in California?
- Dual Agency
- What Does a Real Estate Commission Cover?
- Get the free Opendoor app
Real estate agent salaries
Real estate agent salaries aren’t based on a yearly or hourly wage. Instead, most agents make money only after a home has sold.
This income is in the form of a commission, which equates to a percentage of the home’s selling price. So a real estate agent’s salary depends on the sales price of homes where they work.
That’s a lot. Zillow reports the median sale price of a U.S. home was just over $287,000 in May of 2021.
A 6% commission on a home selling at $287,000 would equal $17,220. Even after a 50/50 commission split, an agent could earn $8,610 on the home sale.
And, at the high end of the market, the figures must bring tears even to rich people’s eyes. A homeowner who sold a mansion in Manhattan or Beverly Hills worth $50 million would be writing (through those tears) $2.5 million or $3 million commission checks.
But before you decide to launch your new career as an agent, remember that not every real estate professional works in New York or California, and not every real estate transaction includes seven figures.
What If I Can’t Afford Closing Costs as a Seller?
If you can’t afford closing costs, you canask your lender or the buyer to help cover some of the cost. On the other hand, you can apply for Down Payment Assistance or a Closing Cost Assistance Grant.
Closing Cost Assistance Grants are specifically available for the purpose of helping low to moderate-income households. To learn more, inquire with a trusted lender for more information.
If a loan or grant is not an option, consider negotiating with your lender to assist you by lowering your down payment on your next house.
The money saved in the down payment should be able to cover your closing costs. As a result, you should expect your mortgage costs to increase.
Don’t Break the Bank
Lastly, if you wish to ask the seller if they are willing to pay part of the closing costs, make it clear that the sale agreement is contingent on meeting this condition.
You may choose to reveal that you do not have the funds for the closing costs and that as a result, have applied for a grant or have spoken with a lender already. However, you’re not required to.
Before facilitating this negotiation, talk to your realtor for advice on how to best move forward.
Alternatives to using a real estate agent or Realtor
Many sellers think real estate agents’ commissions as too high and try to avoid them.There are three main ways of selling a home without such high costs:
- For sale by owner — At its most basic, this might involve putting up a yard sign, printing and distributing some flyers, and telling everyone you know your home’s for sale. It’s cheap and sometimes works, especially in hot real estate markets. But the risk of undervaluing or overvaluing your home is high
- Flat-fee MLS listing by owner — The MLS is the Multiple Listing Service. It’s the online resource that real estate agents use to let other agents and buyers know that a home is available. Owners can add their listings (which may appear on Realtor.com and Zillow, too) by paying a flat fee — or a smaller flat fee with a success charge on sale
- Trimmed-down services — Some agents offer lower commissions for a more basic service. You might get a menu — from MLS alone through increasingly complete levels of service — from which you choose what you want and how much you’re willing to pay
Are these better ways to sell? That will depend on many factors, including:
- How strong your local property market is
- How good you are at appraising your own home’s value
- How much effort you’re prepared to put into finding a buyer
- How confident you are in your ability to shepherd your sale through to closing
If you’re sure you can handle all those as well as an agent, feel free to sell without enlisting one.
But for many people, working with a real estate agent, broker, or Realtor gives them peace of mind they’re getting the best price on their home from the most qualified buyer.
How Much Do Real Estate Agents Make?
The median annual pay for real estate agents was $48,930 in 2019, according to the most recent data available from the U.S Bureau of Labor Statistics. For brokers, the figure was $59,720.
Of course, real estate agents and brokers can make much more than that. The highest 10% of agents earned more than $111,800 in 2019, while the top 10% of brokers made upward of $178,720.
How to avoid paying Realtor fees
In 2019, just 11 percent of home sales were sold by owners without the help of an agent, according to the National Association of Realtors (NAR). In addition, NAR says, for-sale-by-owner homes (FSBOs) typically sell for less money than homes sold by Realtors. In many instances, FSBO sellers already know the buyers who end up purchasing their homes. Buying without a Realtor is also doable, but the jury is out about whether it’s a wise move — especially in this market.
When you shop around for Realtors, ask them from the outset what their commission is and compare the terms of each person you talk to. If you think the fee is too high, talk to them about lowering it.
“In certain situations where there’s a competitive environment for a prime or trophy listing, Realtors sometimes will negotiate the commission upfront,” Duffy says. “For example, if I’m listing a $4 million home at 6 percent, that’s a lot of money. In a situation like that there is greater flexibility to negotiate the commission — if you get $100,000 or $80,000 instead of $120,000, it’s still a good payday.” If the transaction is being handled on both sides by agents from the same brokerage, you might have more leverage as well.
Is Hiring an Agent Worth the Cost?
Okay, now let’s answer the question you’ve been waiting for: Are real estate agents worth the cost? Well, as we covered earlier, sellers cover the commission for both agents. So, buyers have nothing to lose! But how about you sellers out there? If you’re considering not using an agent or going the “For Sale by Owner” (FSBO) route, first take a look at the stats. The latest data shows the typical FSBO home sold for $217,000 compared to $242,300 when sold by an agent.2 That’s a $25,300 difference!
If you’re considering not using an agent or going the “For Sale by Owner” (FSBO) route, first take a look at the stats. The latest data shows the typical FSBO home sold for $217,000 compared to $242,300 when sold by an agent.2
Sure, around $16,000 of that would go toward the agent commissions. But that’s still almost $50,000 more in your pocket than you would have gained by selling solo! And, even if that difference ($65,000) is only half right in your particular market, you’d still potentially come out ahead by $18,500 by using an agent.
A Typical Agent Payday
To put some hard numbers to all this, let’s look at how agents would be paid on a typical transaction of a $200,000 home with a 6% commission:
The total commission would be $12,000. That’s $200,000 times 0.06.
The listing broker and buyer’s broker would often split that equally. So each would get $6,000.
Then the brokers would pay their agents. Assuming their deals call for 50-50 splits, each agent would get $3,000.
Note that the agents and brokers are usually only paid if the transaction is completed. If something goes wrong before closing, typically nobody gets paid.
There are exceptions, however. Listing agreements generally spell out circumstances when the commission may have to be paid to the listing broker even if the house doesn’t sell.
For instance, if a capable buyer makes an offer and the seller simply decides not to sell, the seller still may be required to pay the commission. Other cases like this include if the seller can’t produce a clear title or can’t turn the house over to a buyer within a reasonable period of time.
Who Actually Pays The Agent?
The simplest answer that many agents tell their clients is that the seller pays them. But in reality, it’s a little more complicated than that. The commission payment is technically distributed by the seller and can even be factored into the initial listing price of the home. But it’s the buyer who is essentially footing the bill at closing because they are providing it through the money they pay the seller. Likewise, one could also argue that the seller takes a hit because the fee is coming out of the home’s equity. When you understand who actually pays the agent, that also helps you to answer the other key question: How much do real estate agents make?
Do Real Estate Agents Make a lot of Money?
Commission splits and parties involved greatly influence how much a real estate agent will make by the end of the year. Obviously, the price of a home and the number of transactions a real estate agent facilitates in a year are the most important factors. The balance between these factors explains the wide range of pay between agents. Successful real estate agents can easily earn a salary of well over six figures with the commission splits outlined above.
Many agents, especially top performers, can negotiate commission rates with their brokerage. The first step to getting a raise is having the courage to ask.
How commissions have changed over the years
Since the early 1990s, Realtor commissions have seen a fairly steady decline. In 2021, the average commission was 5.5 percent — down from more than 6 percent in 1991.
This isn’t to say the total amount Realtors earned decreased, however. In strong selling markets, home prices are high and sellers receive multiple offers. This allows more room for negotiation on the commission, so Realtors may accept a lower commission to earn a higher amount overall.
As the market slows down, Realtor commissions may rise again and become less negotiable. Even so, a seller with a high-priced listing may still be able to negotiate a lower commission more effectively.
Other Pay Models
Although it is common for agents to be paid a percentage of the commission, there are cases in which real estate agents who are employed by a broker are paid a salary. Redfin—an online property search site that employs a staff of full-service real estate agents who are paid a salary plus bonus based on customer satisfaction ratings the company collects—is one example.
What Do Closing Costs Include?
The closing costs are normally between 8-10% of the house’s purchase price.
2-4% is paid for title insurance, taxes, appraisal fees, deed recording fees, loan origination fees, attorney fees, and discount points. The other roughly 6% makes up the commission which is divided among the real estate agents involved.
There are other smaller fees within the closing cost as well. These should be accounted for in the final contract. If you read the final contract carefully to know what the costs are (and why they are priced accordingly) it will benefit you greatly.
The Bottom Line
Real estate agents are paid on commission. The percentage is based on the property’s selling price. Normally commissions are split between the buyer’s agent and broker and the seller’s agent and broker. While the seller pays the commission, it’s usually reflected in the price paid by the buyer.
How Do Agent Commission Splits Work in California?
How much do California real estate agents take home after each close? There are a few commission splits to consider.
First is the total commission paid by the seller. In California, it ranges anywhere from 1-6% of the sales price. The standard is 5-6%, but for high-priced properties (i.e. $1+ million) the commission may be more like 4-5%. The amount is negotiated between the seller and listing agent before a contract is signed.
Next comes the commission split between the listing and buyer agent. Typically, the commission is split 50/50. Every now and then you may see a listing that offers the buyer agent a higher split in hopes of attracting more leads. The opposite can also be true. The listing agent may take 3.5% to offset the expenses of selling the property and offer just 2.5% to the buyer agent.
Dual agency is another possibility. If the listing agent ends up finding the buyer and representing both then they receive the full commission.
Finally, the commission split between agent and broker. The broker will receive the proceeds from a sale, then pay the agent their cut. The agreed upon commission split can differ from agent to agent even within the same brokerage. New agents may receive a 50/50 split while seasoned agents can get upwards of 70/30 or 80/20.
There are also two other possible commission scenarios. You may pay a monthly broker fee and keep 100% of the commission. The broker may also offer a sliding scale commission split. In this case, the commission starts low around 40/50 or 50/50 and becomes more advantageous the more you sell.
Be aware there could also be additional broker fees per sale, month or year.
Agents on both sides of a deal have a fiduciary responsibility to their clients. This means agents must disclose known issues about a property and negotiate in good faith. As such, a buyer’s agent must act in the best interests of their customers just as a seller’s agent must represent the best interests of their clients. There may be a time when a listing agent also represents a buyer (for the same property), and this is known as dual agency.
Because dual agency makes it difficult to negotiate and represent both parties of a real estate deal, several states prohibit the practice. The State of California allows dual agency, but only if the agent or broker fully discloses it to the buyer and seller. To say the least, this becomes a precarious situation.
What Does a Real Estate Commission Cover?
A real estate commission covers all the work that goes into buying and selling property. Trust us, a great agent does a lot to help you buy or sell a house. A seller’s agent shows you how to stage your home for buyers and—since they know what similar homes in your area are selling for—they help you price it right. They also put your home in front of a ton of buyers using a multiple listing service (MLS), social media and ads. This helps you get your home sold quickly and for top dollar.
Meanwhile, a buyer’s agent studies home listings that match your needs and price range. They help you arrange a home inspectionand oversee any necessary repairs or contract adjustments so you don’t get a bad deal. They do everything they can to help you find and purchase a dream home that’s within your budget.
Beyond those differences, both types of agents give you the confidence that a real estate professional is on your side, and they offer many similar services. For example, both agents:
Meet with you in person to understand your needs and answer any questions you have
Educate you on current market conditions
Give you access to an MLS—which offers more options to buyers and visibility to sellers
Refer other needed pros (mortgage lenders, photographers, inspectors, attorneys)
Schedule home showings
Negotiate the best price for you
Represent you throughout the sale and act in your best interest
Help you through the mountain of paperwork
A good agent tackles these tasks day in and day out. Their experience helps you avoid rookie mistakes. Sure, you can try to handle all these things by yourself. But, when you’re sitting in the hot seat of a real estate transaction, you’ll quickly realize that agents are worth their weight in gold!
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