It’s the burning question that is the “elephant in the room” whenever you’re working with a salesperson. I’ve been in far too many situations where people are unfamiliar as to how real estate agents are paid. With this post I hope to clear up some of the ambiguity and allow people a brief preview into how this world works. I’m offering a very broad overview of the compensation system for typical residential real estate transactions. Regardless of your current situation, this post can serve as a great opportunity to gain some basic information on the process.
It all starts with the initial need to sell a home or lot of land. A Seller (homeowner, builder, bank, etc.) decides that they would like to put a home/lot for sale on the market. In most cases, the seller will enlist the help and experience of a real estate agent to market and sell the property. Both parties typically agree on compensation (usually a percentage of the purchase price) in return for the services the agent provides. It is also that agent’s responsibility to enter accurate information for that property as a “listing” in a program called the Multiple Listing Service (aka “MLS”). This agent is referred to in the transaction as the “Listing Agent”. Obviously, the listing agent doesn’t have the time, resources, or access to reach and vet every single qualified buyer in the market. In an effort to get their client the fastest sale for the most competitive purchase price, they recruit the help of all the real estate agents that are members of the MLS in their area to provide a buyer. These agents are simply referred to in the transaction as the Buyer’s Agent (or Selling Agent). In return for their help in selling the home, the listing agent agrees to pay them a portion of their compensation from the seller.
Buyer’s agents typically charge a fee for helping a buyer, but the good news is that in most situations, the listing agent offers to pay that agent’s entire fee. Which means that in most cases, a home buyer can get my services and expertise as a real estate agent for FREE! There are some situations (ex. “For Sale By Owner”) where the seller is offering no compensation or a compensation that doesn’t cover the buyer agent’s full fee. In those instances, the compensation would become the buyer’s responsibility. However, those scenarios are rare and typically don’t arise in most transactions.
It’s also important to note that most every real estate agent works strictly on a commission basis with no base salary involved. Agents don’t get paid until the entire transaction is completely finished and the buyer’s name(s) has been recorded on the deed. So if you meet an agent that spent months working on a deal and had it all fall apart in the final hour, you should probably offer to give that person a hug. The only thing getting deposited into their bank account is the “hefty” checking account interest accrued over the past month!
Either way, a quality real estate agent, like myself, will always work to help his clients do what’s best for their needs and not his personal bank account. I’m always available to talk if you want to go into greater detail on what is involved in hiring a real estate agent. If you’re in need of an agent that will work relentlessly with your best interest at heart to help you buy or sell a home, look no further!