How Agents Get Paid?

Thank you for taking a look at this page.  For some reason it seems to be either a big mystery or a big secret as to how real estate agents like myself earn our commission.  No mystery or big secret here, so this page is dedicated to help educate consumers, exactly how this happens and give some examples.

It breaks down like this:

Preface: Keep this in mind as we move forward.  Think of every real estate sale as having 2 sides. A Listing side and a selling side.

A real estate agent and home seller sign a listing agreement for the marketing of a piece of real estate.  Included in this listing agreement the total commission is defined.  For our example lets use the standard 6% of the net sale price of the home.  This agent is known as the listing agent.

Now in today's real estate world, a lot of home buyers are a little more educated and they have found another real estate agent to help them find a home and navigate the process.  So that very same listing agreement has another section that says, of the total commission we are paying your agency to sell our home we will offer X% to a cooperating agent who brings in a buyer.  The standard amount for that is usually 50% of the total commission, so for our example lets use 3%.This agent is known as the selling agent.

Now lets get into a transaction.  An average sale in the state of RI is somewhere around the $200,000 level.(Actually a little higher, but it works best for math in the example)

• That comes out to a $12,000($200,000 X 6%) total commission that the seller is paying to get a home sold.
• Assuming there are both a listing agent and a selling agent and it is split evenly, each agency will get $6,000.($200,000 X 3% for each agency)
• Let's assume on this transaction, I am the selling agent.  I would love to tell you that the whole $6,000 was going to me.  Unfortunately, that is not the case.  My broker, in my case Exit Realty Firm, would like a portion of this sale to help with the cost associated with running an office.  Their are a lot of different commission split structures out there, but again for math purposes, lets assume a 60/40 split, meaning of every dollar an agent brings in 60% goes to the agent, 40% goes to the brokerage. Now my commission on this sale is $3,600($6,000 X 60%) and the brokerage share is $2,400($6,000 X 40%)

That gives a breakdown of how a real estate agent gets paid.  Of course there are a lot of variables that can go into a real estate transaction and that is just an example.  But I want to finish with one big point!  Nowhere in this transaction do you see any fee or commission paid by the buyer.  That is because in most real estate transactions, the buyer pays no fee to have the expertise and experience of a licensed real estate agent on their side.

(401)258-4470 or ccox@exitfirm.com