If you’re looking at a career in real estate, you’ve probably realized that most real estate agents live entirely on commission. But you might be a little fuzzy on the details. You’ll often hear that real estate agents get a 6% commission on the property’s selling price, but that’s from the client’s perspective. In reality, the individual real estate agent only gets a portion of the total commission paid. The exact proportion varies by how many agents are involved, the total negotiated commission, and the fee arrangement you have with your broker. We’ll break it down, below.
First, we have to understand everyone who’s involved in a sale. In addition to the buyer and seller, we have:
The Listing Agent: The agent who works on the seller’s behalf to list and sell their property is called the listing agent. Sometimes also referred to as a seller’s agent, for obvious reasons.
The Listing Broker: If you only have a real estate license, you can’t legally accept commissions directly. That’s why real estate agents have to work under brokers. Brokers are agents who have upgraded to a broker’s license. They can handle commissions, establish a real estate firm, and hire real estate agents to work under them. Since brokers bear the brunt of the liability and overhead for your business, they either keep some portion of your commission or a flat monthly fee.
The Buyer’s Agent: Some buyers contract with an agent of their own who will represent their interests. Not every deal has a buyer’s agent. Some sales are handled by the listing agent only. But when a buyer’s agent is involved, they get part of the commission.
The Buyer’s Broker: Buyer’s agents also work under a broker. Now that you know the players, let’s talk about how money changes hands.