In the real estate industry, agents and brokers do not receive a salary. Instead, they make money by receiving a commission on successful property transactions. Commissions are a percentage of the selling price of a property.
How do real estate agents get paid?
Many people don’t realize that using a Buyer’s Agent (aka someone representing the buyer in a home purchase) is absolutely free for the buyer! Typically, the seller pays all commissions in a property sale.
When selling a property, the seller negotiates the commission rate with the Seller’s Agent. The Seller’s Agent lists the property for sale in MLS (a system real estate agents use to search for properties) and notes what the commission will be for the sale of the property. (Though there is no required standard for commissions, in MA the typical commission you see on listings is 5-6% total, to be split between the two real estate agents.) This commission does not only go to the Seller’s Agent, but a portion goes to your Buyer Agent as well.
That means when you see a property for sale, the dollar amount listed already has the commission built into it.
Usually, the commission is split 50/50 between the two agents (Buyer’s Agent and Seller’s Agent). For example, if a property sells for $250,000 and the commission is 5%, then the total commission made is $12,500. After that amount is split between agents, each agent will receive $6,250.
The agents then take their commission back to their brokerage, where it gets split again. (This is how brokerages make money.) The agent will get to keep a pre-negotiated percentage of the commission received, and the brokerage will keep the rest. The commission splits between an agent and a brokerage depend on quite a few factors, including the agent’s tenure, amount of sales in that year so far, etc.
Usually, the commission is solely for the benefit of the agents and brokers involved in the transaction as compensation for their time and energy in selling the property. With Torii, we use a portion of our commission to save our clients money. To learn more, speak to an agent today!