How does real estate agent get paid in a real estate transaction?
When you are buying or selling your home, you’re likely to work with a real estate agent for your transaction. It is helpful to know how your Realtor is compensated, this will help you determine the best way to work with your agent.
Real Estate Agents are paid on a commission basis, whenever they sell a home. Unlike other professionals who bill their clients at hourly rates or present an invoice at the end of a project, real estate professionals are paid at the end of a sales transaction.
If a real estate agent works with a buyer or a seller for weeks or months without a resulting transaction, they aren’t paid for their time. REALTORS® earn a commission based on the sales price of the home and receive that commission only after the transaction goes to settlement. Real Estate Agents do not receive salaries from the companies they are associated with. In fact, part of the commission we earned, we have to pay the company we associated with.
So, how we get paid specifically?
Whenever a home seller sign a listing agreement with an listing agent, the seller agrees to pay the commission when they sell the home. The commission is based upon the selling price of the home. Currently in Arizona, these fees are usually 6% of the sold price. These fees are not set by law or any agency. They are agreed by both seller and the agent.
How much real estate agent take home?
Let’s look at this scenario and see how it works. A homeowner ask me to sell his/her home. We both agreed to list his/her home for $300,000 after comparing the similar homes in the area. Homeowner agree to pay 6% of commission after the home is sold.
$300,000 x 6% = $18,000
Co-Broker
In a normally real estate transaction, listing agent represent seller and you have buyer agent represent buyer, unless you in dual-agency scenario. Listing agent list the home, market the home for sale. Buyer bring in buyer, put in offer, seller accepted offer, go into escrow and transaction closed.
From the example above, $18,000 commission will be split between 50/50 listing agent and buyer agent traditionally. Of couse you may see some situation differently.
So, listing agent get $9,000 and buyer agent gets $9,000.
Brokerage cut
Out of the $9,000 commission received by agent. Agent may pay the company they associated with (remember we have to pay the company we associated with?). The fees is depends on company. Some 50/50, some 60/40 and so on. Let take example of 70/30. Agent receive 70% and 30% pay to the company. That leave $6,300 to agent.
Business expenses
Out of the $6,300, agent will have to pay annual association fees, MLS fees, marketing fees, insurance, gas…. and so on…. Let’s say 35% of $6,300, that leave $4,095.
Taxes
Remember we don’t receive salaries from the company? Hence we have to pay our own taxes, social security, medicare etc…. That’s another about 13%. That leave $3,562 to take home.
Swee Ng, Realtor and Phoenix East Valley resident specializing in win-win real estate transaction through great communication and fighting for his clients’ best interest. After all, this is more than real estates, this is about your life and your dreams.
If you are looking to buy or sell your home in Phoenix AZ and surrounding area, we hope you will consider us. Contact us today for complimentary consultation.
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