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How Does A Real Estate Agent Commission Work?

Last updated on November 3, 2021

How Does A Real Estate Agent Commission Work?

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Real estate can be a great line of work to get into, but just like any other profession, it has its ups and downs. In many cases, salespeople are in charge of one of the most significant purchases a person will ever make in their lifetime. This means there is plenty of pressure, and messing up is not an option. These professionals sometimes work irregular hours, and the paycheck is not always steady. Still, when the housing market is good, and the economy is strong, being an agent, broker, or realtor can prove to be extremely lucrative. So, stay tuned to learn the ins and outs of a real estate agent commission.

Median wages for these occupations vary from town to town and state to state. For instance, research from salary.com shows that the earnings for an agent in Estelline, Texas were $34,428 as of September 1, 2018. Meanwhile, the average annual base salary of a real estate agent in Houston, Texas was $42,060 at the same time. However, thanks to the commission the sky is the limit. The national median wage for people in the 90th percentile is $109,490 per year. Read further to discover how the real estate agent commission works.

The Real Estate Agent Commission Is Negotiable

Like the salaries, the commission also varies because agents and buyers or sellers can negotiate the rate as needed. Many folks believe the amount is a standard 6%. However, the number fluctuates usually between 5 and 6-percent. The amount an agent will receive is not known until the property sells. Depending on how a person looks at the situation, the payment can come from the buyer or seller since the fee comes from the sale proceeds. Plus, the pay is often split down the middle with one part going to the buyer’s agent and the other getting paid out to the seller’s agent.

An Example Of A Real Estate Agent Commission

For this sample, the real estate agent commission will remain at the 6% mark. If a home sells for $250,000, $15,000 is the amount due after the sale finalizes. It is notable to mention that the expense does not get tacked on to the top of the sale price. Rather, it comes out of the initial home cost. Hence, instead of the seller receiving $250,000, they will only get $235,000. Providing that the agents have an equal 50/50 split arrangement, each party will walk away with $7,500.

Another Example Of A Real Estate Agent Commission

Let’s say that a piece of property closes at $300,000 this time. Assuming that the real estate agent commission remains at 6%, the fee due after the sale closes will be $18,000. Instead of a 50/50 divide, the seller’s agent will receive 60-percent while the buyer’s agent only gets 40. Hence, the seller’s agent will receive $10,800, and the latter takes home $7,200. In this case, the person selling the structure walks away with $282,000.

Don’t Let The Dollar Signs of A Real Estate Agent Commission Blind You

In most states, an agent must work under a broker’s license. Therefore, if you are not the broker of the sale, the amount of money you will bring home depends on the agreement that you have with the brokerage firm. For this example, the $250,000 deal mentioned above will be used. If the agent and broker have an understanding where both parties receive equal shares of the real estate agent commission, then, the $7,500 profit becomes split yet again. The agent will receive $3,750 after the broker takes his or her cut of $3,750 as well.

Cut Out The Middle Man

There is always the option of becoming a broker yourself. This action will allow you to keep all of the proceeds from the real estate agent commission. However, before just up and changing positions, there are some things to know about the process. Firstly, most states require salespeople to work under a broker’s license for a specific period. The amount of time varies from place to place, but it is typically between 1 and 3-years. So, if you haven’t met this obligation, you must wait until after doing so to attempt the test.

Additionally, the majority of places across the United States make applicants attend pre-licensing courses. These obligations need to be met before moving on to the next step. The classes will be similar to those that a person has to take ahead of getting their agent license. The material touches on those topics that the person already learned, but new subjects become part of the equation as well.

These different topics include things like…

  • Property Management
  • Business Laws
  • Obligations For Serving As A Licensed Broker
  • Real Estate Investments

There are also various expenses that will cut into your profits. However, the costs are necessary and sometimes even mandatory to be successful in the industry. For instance, insurance coverage will need to be purchased. After all, accidents happen, and nobody wants to be on the hook for the damages. Salespeople will have to get paid if the broker is not going it alone. Plus, there will be advertising costs as well. Attracting new clients is a must today.

A Final Real Estate Agent Commission Example

Not all homes or pieces of property will sell for large sums. Another thing to keep in mind is that not all of them sell quickly either. In some cases, buyers will snatch them up in a hurry, but more often than not, the places will remain listed for weeks, months, and sometimes years. Anyway, on with the show. If a lot or structure closes at $90,000, and the real estate agent commission is 6%, the bring home pay is much lower than the examples above. The total for the fee is a mere $5,400. Of course, this amount gets split between both agents too. So, if each person gets an equal share, they will receive $2,700.

How Real Estate Commissions Work

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