Real estate agents get paid by commission when they close a home for a buyer or seller. The percentage range from 1% to 4% of the transaction. Some agents may require a higher commission, and be worth every penny.
To work by commission, particularly for real estate agents, means they have to shell out money in advance for marketing, advertising, driving, printing, mailing, calling, networking, and training in order to grow their clientele and to help clients solve their real estate matters of buying, selling, or renting a home.
Have to close
If a deal does not have a happy ending where the home is sold or rented, then the real estate agent gets nada, zip, zero, zilch, goose egg to pay for the expenses that have been racked up. Thus, your real estate agent has an incentive to help your real estate goals.
Fees are negotiable. In knowing that real estate agents only earn commissions after your real estate transaction has successfully closed, then the obvious question is “what should you pay your agent?”.
Commissions vary widely from agent to agent based on what services the real estate agent has specifically offered to provide. Before hiring a real estate agent, the agent should inform you on their fee before you hire them.
Who pays the commission?
Commissions are typically paid by the home seller unless other arrangements have been made. In most real estate sales situations, the home seller agrees to pay the agent, better known as the listing agent. Then, the listing agent may graciously offer a portion of his commission to the buyer’s agent, also known as the selling agent.
However, there may be exceptions where the buyer’s agent will not be paid by the listing agent or seller (if there is no agent). In those instances, it is not uncommon for the buyer’s agent to ask the buyer to pay commissions (beyond the cost of the home) at closing.
What about investment properties?
With investment sellers, some agents may only agree to market the home in the local Multiple Listing Service (the online portal that gives real estate firms and in many cases the general public the opportunity to learn about homes for sale). Such agents may request a fee as low as $300.
Then other agents may offer to market your home, meet with prospective buyers, negotiate contracts, coordinate vendors and the like. Those agents may require a commensurate pay of 6-10% of the home sales price. Furthermore, you may have an investment portfolio that needs monthly servicing and maintenance of which a real estate agent may typically charge 5%-30% of monthly rents.