How Realtors are Paid

In the previous article, we discussed how to determine whether to buy or to rent. If you decide to purchase a home in northern Michigan, you need to know how to work with a realtor. In this article, we’ll discuss how real estate agents are paid.

Real estate agents are usually paid on commission alone. Unlike many other types of consultants, agents do not charge an hourly rate for their services. Instead, they receive a portion of the money from the sale after a transaction is complete. 

Commission from the sale can be a flat fee, but is typically a percentage of the sale price. 6% is a typical commission rate, although this number can also vary. If both the buyer and seller are represented by an agent, the commission is split, usually 50/50, between the buyer’s agent and seller’s agent.

The seller pays the commission costs at closing. However, buyers should note that the seller factors commission into the property’s asking price.Blue-House-Sold-icon

Real estate agents cannot work independently; they must work for a licensed brokerage. When a transaction is completed, the commission is paid to the broker, who keeps a portion, then pays the agent his or her portion. Typically a broker takes 40% of the commission, while the remaining 60% goes to the agent. This portion is determined as part of the agent’s work agreement with the broker.

To put all the pieces together, let’s look at an example. Susan lists her downtown Bellaire home for $100,000 at a 6% commission rate, and hires George to take on the listing as the seller’s agent. Bob has always wanted to move to northern Michigan, and through the services of Kate, another real estate agent, decides to purchase Susan’s home for asking price. Susan is responsible for paying the 6% commission of $6,000, which will be split evenly between George and Kate’s respective brokers. After each agent is paid their 60% by the broker, the final commission split would be as follows:

  • George (seller’s agent): ($6,000 / 2) * 0.6 = $1,800
  • George’s broker: ($6,000 / 2) * 0.4 = $1,200
  • Kate (buyer’s agent): ($6,000 / 2) * 0.6 = $1,800
  • Kate’s broker: $6,000 / 2) * 0.4 = $1,200

Real estate agents can also function as both the buyer’s agent and seller’s agent for a transaction. In this case, the agent and his or her broker receives all the commission.

In addition to brokerage fees, realtors pay licensing and education fees, as well as board dues. They often pay many expenses, such as advertising and travel expenses, out of their own pocket without guarantee of receiving commission.

If you have questions or are interested in hiring a professional realtor who can guide you through this process, Donna Gundle-Krieg loves working with people and would be happy to provide you with more information. She has many exciting listings available in great Antrim County locations, which you can view here. You can contact her at (231) 350-8507 or to learn more.

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