American home owners sell and move, on average, every five to seven years. People who have lived in the same home for the past 30 years have a hard time understanding this phenomena. They are shocked that people move so often. Yet, some people live their entire life without ever buying a home and most people who buy real estate only buy one or two homes in their entire life. I sometimes lose touch with that until I meet someone that I have to explain what a Realtor is and what a real estate agent does. Did you know that Realtor is not a job or occupation? A Realtor is someone who belongs to the National Association of Realtors. We pay dues to belong and while membership is not mandatory it is almost impossible to sell real estate without being a member.
At times buyers will ask me how I get paid or who pays me. Some think that real estate companies pay agents. Most agents are independent contractors (self employed) that work on a 100% commission basis. Real estate agents need to work through a real estate broker and that is the purpose of a real estate company. The agent has to pay the real estate company a percentage of each commission.
It is the seller that pays us, it is called “broker reciprocity” and we get paid through the sellers broker. When an agent lists a home the seller agrees to pay a commission. Some of that commission goes to the agent the seller hires and some of it will go to a buyers agent. Either way we generally don’t need to charge a buyer directly. Commissions are not due until the home is sold and the sale closes. Agents work for free up to the closing and then we get paid. If something happens and it fails to close, we get zero. After closing, the check goes to the real estate brokerage and the brokers will take up to half of it and then cut the agents a check for the rest.
Home buyers and sellers often believe that real estate companies sell real estate. They really don’t and to go one step further in most cases the agent is paying for everything including the sign with the big company logo on it. It is both a good system and a bad system.
Below is an example of what happens to a real commission when there are two agents involved and with a negotiated commission of 6%. Remember, commission is always negotiable.
Most people think real agents are overpaid, not realizing the commission is usually split four ways and all the many expenses that agents have to run their business.
Yes, it is true that selling real estate can be a rewarding and profitable buisness. However, to be successful, one needs to have the skills to educate, counsel, sale, negotiate, market, be able work under stress, be on call 24/7 and work very long hours. So please don't be surprised if your agent refuses to negotiate his/her commission. Take it as a good sign that same agent will negotiate well for you too and earn, if not, pay for their professional fee...the real estate commission.
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