Demystifying Realtor® Compensation:

How Real Estate Agents Earn Money

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Have you ever wondered how Realtors make their money or who actually pays their commission? It's a question that often goes unnoticed, but understanding how real estate agents get paid is crucial for any consumer entering the housing market.

Contrary to popular belief, real estate commissions usually come from the seller. When a home is sold, the seller's Realtor splits the listing fee with the buyer's Realtor. However, there are instances where the listing commission may not cover the buyer's agent's compensation. In these cases, the buyer becomes responsible for paying their brokerage at the closing. Rest assured, any amount the seller has already paid will be credited towards the buyer's payment. So, if the buyer broker compensation is, let's say, 3%, and the seller covers 2%, the buyer would need to pay the remaining 1% to their brokerage at closing.

Realtors typically split commissions evenly, usually in a 50/50 arrangement. For example, if the listing Realtor secures a 6% listing fee, both the buyer's and seller's Realtors would receive 3% each once the deal is finalized.

It's worth noting that there is another scenario where the buyer's commission can be divided further. When a Realtor refers their client to another Realtor, typically in a different market, the referring Realtor receives a referral fee, usually around 25-35% of the buy-side commission.

Now that you know a bit more about how Realtors get paid and how commission splits work, it's important to understand that there are other parties involved in a real estate transaction beyond just the buyer and seller Realtors. Realtors have various expenses that eat into their profits, such as office space, equipment, and marketing. It's essential to recognize that being a Realtor is not only a rewarding profession but also one that comes with many responsibilities.

Remember, the figures and percentages mentioned here are merely examples and can vary in different markets and transactions. As a consumer, having a clear understanding of Realtor compensation helps you navigate the real estate process with confidence.

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