Real Estate Agent - How They Make Money

Have you ever wondered how your real estate agent gets paid? Sure, there is talk of commission, percentages, fees, closing costs- all of these are broken down at closing. But, what does he actually get? Surprisingly, you do not pay your agent a commission. Only a licensed broker can get paid a commission and he is the one who pays your agent. There are also a number of ways to divvy up the pay. The person who worked so hard to sell or find your house may not be making as much as you think. Here are some of the ways the money makes it to your representative:

A real estate agent works for a licensed broker or brokerage house. When he brings a client to the table, either for buying or selling, an agreement is signed between the client and the brokerage house. Typically when a sale is made, an average of 6% of the sale price is commission for the brokers. It is not always a straight split, but close to half, which goes to the broker representing the seller and the buyer.

Once the commission is divided up between the houses, the brokers then decide how much to pass down to the agent who actually did the leg work. This amount varies depending on experience, time with the company and the productivity level of the representative. A brand new representative may only get thirty percent of the cut where as a seasoned pro that brings in a ton of business, may get half or more of the proceeds.

Another option is that the agent gets all of the commission, but pays a monthly fee to the brokerage house. This is sort of a rent. He gets an office and uses the company name to back his reputation. This is an attractive deal to many representatives, because they pay the same amount every month, no matter how much they make. For new people to the business who have not built up a client list and do not benefit from word-of-mouth yet, the traditional split is usually preferable, because they may not make enough every month to make the set payment.

There are some factors that eat into the final profit made by the brokerage house and the representative. If the house is a franchise, there is a fee that must be paid to them out of every commission. Sometimes referrals come into play as well. If a brokerage house sends a customer to you, they will want a referral fee. There is a percentage that also comes out of the commission.

Typically, this commission is paid by the seller at closing. However, depending on the type of market, this is negotiable. Another negotiable point is how the commission is divided. If you are having a difficult time in selling, because the market is flooded with houses, you may want your representative to offer a bigger cut of the commission to the buyer's representative. This may help close the deal.

So, as you can see, there is more to the payment than simply figuring 6%. After everyone else gets the money, your real estate agent is then paid the amount.