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How Do Real Estate Agents Get Paid?

Whether you’re planning to buy a home (to start a rental property business) or sell a home, you will be needing a real estate agent to help you in the transaction. Or maybe you’re a new real estate agent yourself.

Statistics show that nearly 90% of buyers have worked with a real estate professional.

When it comes to how real estate agents make money, they get paid in the form of commissions at the end of the transaction. The commission can be a certain percentage of the home’s selling price or it can also be a flat fee. Commission splits between brokers and agents are common. (Take note that brokers hire real estate agents) 

If you’re confused at this point, don’t worry because we’re going to present all the details you should know about real estate agent compensation below.

Factors That Affect Commission Rates

As previously mentioned, a commission of the total sales price is paid to a real estate brokerage and that commission is divided between the brokerage and the agent. Commission splits vary. 

What is the average commission rate for a broker? The answer is 2%-3%. Common factors that affect commissions are the following:

  • The closing price of the house
  • The customs of the region
  • The type of property (vacant land, residential, commercial)
  • How a client is related to the broker (friend, family member, frequent client, etc)

Methods of Compensating Real Estate Agents

Split fees can vary from 70/30 to 60/40, to even 50/50. Below are three commission models to consider:

50/50 Commission Split

This is a traditional commission model where the broker and agent receive the same sales commission. Assuming that the commission check is $20,000, the broker and agent get $10,000 each at the closing of escrow.

100% Commission

The 100% commission model is a newer one. As a real estate agent, you receive the entire commission. But at the same time, you pay for the broker’s office fees, guidance, marketing materials, membership fees, etc. The more commissions you earn in the same year, the more money you make.

While a 100% commission is a riskier model (because you spend personal money and a home may not sell), many real estate agents have seen success with it.

Flat Fee

Some brokerages compensate agents with fixed fees rather than a commission. There are agents who prefer this kind of agreement because it’s predictable. There are also those who perform really well who dislike this agreement, especially with higher commissions.

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