There are many misconceptions about how Realtors® get paid and over the years, I've come to realize that most people don't really understand how it works.  The truth is that Realtors® are Independent Contractors and essentially operate a business of their own under the umbrella of the real estate company.   As a consumer in the real estate market, you will benefit from the services of an experienced Realtor ® throughout the home buying or selling process.  But even though you may not be footing the bill, it’s important that you understand how real estate agents are paid.

The Truth About Realtors

Following is a summary of how it works...

In a nutshell, the people selling the house pay money to a listing broker based on a percentage of the selling price of their house.  This money is called the commission.  The listing broker splits this commission with both the buyer’s broker and their respective agents as illustrated below: 

Property Price $100,000 x 6% Commission Rate  = $6,000 Total Commission Paid by Seller

   LISTING Company receives 55% of Total Commission or $3,300 Total LISTING Commission

LISTING Agent receives a percent of above Total Listing Commission (usually anywhere from 50-90%).  As example, let's say the Listing Agent gets 70% which would be $2,310 that goes to the LISTING Agent

   SELLING Company receives 45% of Total Commission or $2,300 Total SELLING Commission

SELLING Agent receives a percent of above Total SELLING Commission (usually anywhere from 50-90%).  As example, let's say the Selling Agent gets 70% which would be $2,310 that goes to the SELLING Agent

DID YOU KNOW…

  • Sales associates are self—employed, and receive no salary or benefits. They get no paid vacation time, insurance, company cars or expense accounts from the firm they work with.
  • Sales associates are only paid for results—if and when they successfully complete a property transaction.
  • Keller Williams sales associates are paid the same whether a buyer purchases a home listed by Keller Williams or another broker.
  • As independent contractors, sales associates have ongoing out-of-pocket expenses** similar to those of any small business.

**REALTOR BUSINESS EXPENSES:

  1. All property advertising including internet websites, visual tour software and digital cameras.
  2. All print advertising and marketing of their services.
  3. Marketing materials such as property brochures and direct mail items and postage.
  4. For sale sign installation and removal.
  5. Lock boxes, electronic key pads.
  6. Open house signs.
  7. MLS access fees.
  8. Computer hardware and software.
  9. Long distance, cellular and/or paging devices.
  10. Postage and courier fees.
  11. Business cards, stationery, all office supplies (pens, paper clips, staples, etc.).
  12. Health insurance, Liability Insurance, Personal Business Insurance
  13. Self Employment Tax, Payroll Taxes
  14. Continuing education courses.
  15. Membership expenses and fees for local and regional Real Estate Associations
  16. Personal assistant (salary, taxes, vacation time, health insurance)
  17. Many pay for monthly office expense and purchase their own office furniture.
  18. All vehicle expense including purchase of vehicle, gasoline, repairs and maintenance.

As you can see, as an independent contractor, there are many things that a Real Estate Agent is responsible to pay.  A typical listing can cost the agent anywhere from several hundreds to several thousands of dollars depending on the price of the home and the effort that a real estate agent puts into marketing your home.  Not all agents are equal...and there are no rules as to what an agent is required to spend to market your home. 

If you're paying a commission to a real estate agent to sell your home, make sure you get the service and experience you're paying for.