How Do Realtors Get Paid?
If you’re planning on buying or selling a property, you’re probably considering working with a licensed realtor.
It’s usually a good move, because agents are trained in the specifics of representing buyers and sellers. They know how to prevent costly mistakes, and they can help you secure a more favorable purchase or selling price.
You might wonder, though, how realtors get paid. Here’s how it works:
Agents Are Paid on Commission
Most realtors don’t earn a salary. They work on commission, which means they only get paid when they help people buy or sell properties. There’s no compensation guarantee.
Instead, agents receive a percentage of:
1) The sales price of the homes they sell.
2) The sales price of the properties they help their clients buy.
If they do a good job working with home buyers and sellers, they generally get referrals. More referrals equal more properties bought and sold, and that equals more commission.
A lot of sellers wonder if it’s worth it to use a realtor. We believe it’s a good choice in most cases, but we’ll break it down for you so you can decide for yourself.
When you sell a house, the standard rate you’ll pay in commission is 6% of the sales price. 3% will go to the agent representing you, and 3% will go to the agent who brings the buyer.
As the seller, the realtor costs will come out of your proceeds. After you go through closing, the title company will take out the closing costs, give the appropriate amounts to the brokerages/realtors involved in the transaction, and send the rest to you.
The buyer doesn’t pay any of the realtor costs.
A lot of people don’t realize that the standard 6% commission isn’t set in stone. It’s not a rule or a law…it’s just a guideline that has become the standard way of doing things.
If you don’t want to pay 6%, you’re free to ask any realtor if they’ll represent you for a lower percentage. Some will say yes, and some will say no.
Why Should I Use a Realtor?
The important thing to remember about realtors is that good ones tend to be worth every penny. For example:
• They know how to get the best bang for your buck on repairs you make before you list.
• They’re skilled at working with other realtors to get offers accepted.
• They can tell you what you should actually worry about on an inspection report
• They know what kind of information to get from lenders so you feel comfortable with the new buyer you’ve chosen.
• And much more!
According to a recent survey by the National Association of Realtors, “For Sale By Owner” homes sold for much less than those represented by realtors. The number was $225,000, compared to $330,000. That’s quite a difference!
Realtor Don’t Keep All Their Commission
Also, just so you know, the agent won’t pocket all the money from your transaction. They’ll keep some of it, but here’s where the rest of it goes:
First, a portion will go to their broker, who owns and runs the realty office they work out of.
You might not realize it, but it’s expensive to be a broker. Each brokerage has a lot of general business costs, and they also pay a lot of money for insurance. This is because when an agent represents you in a transaction, the liability for any mistakes ultimately rests with the broker.
As you might expect, brokers are required to be very knowledgeable. In exchange for mentoring agents and accepting the legal responsible for their work, they charge the agents a percentage of their commission.
Second, each realtor runs their own little business. They pay for their own marketing and cover all their own business costs. Like any other business, some months are good and some aren’t. The agents who are smart businesspeople tend to be the ones who are the most successful over the long-term.
Wrapping It Up
So in conclusion, the standard realtor commission rate to sell your house is 6%. You can try to negotiate it down, and you may or may not be successful. Or you might not even want to try, because the best realtors believe they’re worth the money they charge.
The beautiful thing is that it’s up to you, and we can work with you whether or not you have a realtor.
If you’d like any more information about buying or selling real estate in the Tampa Bay metro area, we’d love to chat with you. We look forward to serving you and hope to meet you soon!