How Do Realtors Get Paid?

REALTORS get paid on a commission basis usually at the time of closing or settlement. The actual amount is based on the negotiated rate that the seller and the seller's agent have agreed upon. The commission is split between the sellers agent and the buyers agent. The split ratio is not always an even split and the amount varies as well. The commissions and splits are all negotiable.

Most people don't realize how much risk REALTORS® carry when helping clients. If a client does not close on the home for any reason, the agent does not get paid. The amount of invested hours can range from just a few to hundreds depending on the complexity of the deal.

There is also a dark side to real estate agents not getting paid. REALTORs get lied to many times. Here is what can happen. A potential client claims not to have an agent. They recognize the local agent has the information they need and want. They use them to find the home, tour it and determine an offer price. Then the clients contact their agent friend or relative and have them write the offer. Thereby excluding the agent who actually did the work and deserves to be paid. So if an agent ever asks you to sign a buyers rep agreement, it is so they can ensure they get paid if you close on the home.

Aren't All REALTORS Rich?

No, not all realtors are rich. Our example in the graphic above shows that either agent in the transaction will be paid a commission of $12,000. The agent still needs to pay taxes, expenses, and other charges of doing business from this check.

While there are certainly successful real estate agents who earn a significant income, the income of a realtor can vary greatly depending on various factors such as their experience, the local real estate market, the number and size of transactions they handle, and their personal business practices.

Real estate agents operate as independent contractors and are responsible for covering their own expenses, including marketing costs, licensing fees, insurance, and other business-related expenses. Additionally, real estate agents typically work on a commission basis, meaning they only earn income when they successfully complete a transaction. They do not receive a regular salary or guaranteed income.

The real estate industry can be highly competitive, and success often requires hard work, dedication, strong networking skills, and market knowledge. Some realtors may achieve a high level of success and accumulate wealth over time, while others may earn a more modest income or struggle to establish themselves in the industry. The National Association of REALTORs found that 87% of new agents will be no longer in the industry in just 2 years or less. Thats an astounding failure rate for a professional industry.

It's important to recognize that the income of a realtor can vary significantly from person to person, and generalizations about their wealth may not reflect the reality for many agents.

The Steps Involved To Get Paid

1. Commission Percentage: When an agent represents a client in a real estate transaction, they negotiate a commission rate as a percentage of the property's final sale price. This percentage is typically agreed upon before the agent begins working with the client and can vary depending on factors such as location, property type, and market conditions. The commission rate is usually split between the seller's agent and the buyer's agent.
2. Listing Agreement: If an agent represents the seller, they typically sign a listing agreement. This agreement outlines the terms and conditions of the sale, including the agreed-upon commission rate. The listing agent's commission is typically paid by the seller upon the successful completion of the sale.
3. Buyer Representation Agreement: When an agent represents a buyer, they may sign a buyer representation agreement. This agreement establishes the agent's role in helping the buyer find a suitable property. The buyer's agent commission is usually paid by the seller out of the proceeds from the sale.
4. Closing Process: Once a property sale is completed, the closing process begins. During this stage, the buyer's funds are transferred, and the property ownership is transferred to the buyer. The closing agent or escrow officer, who handles the transaction, will typically disburse the commission payments to the respective agents involved in the transaction.
5. Brokerage Split: Real estate agents typically work under a brokerage firm. The commission earned by an agent is typically shared with their brokerage according to a pre-determined split. The specific split varies depending on the agent's agreement with the brokerage, which may include factors such as the agent's experience level, performance, and any fees or desk charges associated with their affiliation.

Can A REALTOR Represent Both Parties?

Yes, a Texas REALTOR® can represent both buyer and seller in the same transaction, but this is very carefully regulated and controlled. You will only typically see the listing agent entering into this type of transaction.

Texas does not allow dual agency, instead we use something called intermediary. The specifics of a legal intermediary transaction can be quite complex, so we will refer you to the Texas Association of REALTORs website where they lay out the specifics of intermediary.

We do not recommend entering into this arrangement. It can be done with professionalism, but it is very, very difficult to represent both parties and advocate for their best interests while doing so.

You may now be asking why an agent would willingly do this. Well, its the money. The agent gets to keep all the commission that the listing agreement specifies for the transaction. In our example, that would be 6% or $48,000.

In Summary

So now you have a very clear understanding of how your REALTOR® gets paid and how many other people are taking a cut of that sweet commission check. Your agent typically works very hard for their commission and many times is not truly appreciated for the amount of knowledge and time they put into getting you to the closing table. Hopefully, you now see why having a rock star REALTOR® can be a huge value and exactly how they get paid.