Many people have been asking me lately how a Realtor is paid, and I’ve learned there are a lot of misconceptions. People think all Realtors are rolling in the dough; because after selling, $150, $200, $300 homes they should be, right?
Commission for Realtors varies, everything is negotiable and they take on all of their own expenses. So let’s look at a basic and rough breakdown of the commission for most Realtors.
Take a commission of 7-percent on a $200,000 home, which would be $14,000.
That $14,000 paid by the seller is then split between the Selling Brokerage and the Buyer’s Brokerage.
Each $7000 is further split down to pay franchise fees (Prudential, ReMax, etc.) – about 7-percent on average.
Then, that $6510 is further split down between the Brokerage and the real estate agent – a percentage agreed upon at the time of hire – say a 75-25 percent split with 75 percent going to the agent and 25 percent staying in house at the brokerage.
At the end of the day, this leaves the Realtor with $4883 to take home.
Like I said earlier – everything is negotiable for a Realtor. The fore-mentioned 7-percent commission is variable, the seller’s and buyer’s brokerage do not normally have a 50-50 split and the end result does not consider the cost of open houses, fliers, signs and advertising that go into the sale of a home.
It is often a misconception that a home sold by an unrepresented seller (For Sale By Owner) will be less expensive and the entire sale will make the seller more money in the end. Often, for sale by owner properties are valued above market value and will not sell at all.
A Realtor values the property at a fair market value and does not raise the price based upon the fact that they need to incur commission, so a buyer will not pay more than the home is worth. In fact, every lender requires an appraisal in order to get a loan, and if the home appraises for less than the purchase price, the buyer can go back to the seller and demand the appraised value.
Each Realtor is an independent contractor and gets paid only when they close on a property. That commission check is a gross payment, before taxes. Independent Contractors pay quarterly taxes on their own to the IRS. This, on top of office fees, MLS fees, Board of Realtor fees, continuing education classes, vehicle expenses and errors and omissions insurance can add up to a big chunk of money directly out of a Realtor’s pocket.
So sure it SOUNDS like we make a lot of money, but at the end of the day after business expenses, taxes and splits with our brokers, we work hard for our money just like everyone else.