How Does a Realtor Get Paid?
Ever wonder how a Realtor® gets paid? You're not alone...most of my buyers don't know! The good news for buyers is that the agent's commissions are paid by the seller. That's right....as a buyer you pay nothing! Did I just make your day?
Most buyers think that agents are employed by their brokerage. Not so! Agents are self employed. The agents not only pay their brokerage a fee, but they are also responsible for paying their own self employment taxes, insurance, marketing, advertising, gas, MLS fees, and many other items for their business.
So the next time you ask an agent to show you a home, just know that the agent is not getting paid for any of that time or gas to get there. They rely on building a good relationship with you and helping you all the way through the home buying process to a successful close where they will eventually get paid. Therefore, find an agent you resonate with and is knowledgeable and then stick with them. If you drop them like hot potatoes, they just lost out on all that time, effort and gas money they spent with you along the way.
Below is a blog I wrote many years ago on this very subject. It provides, in greater detail, the workings of the world of the agent, but it also unveils why agents ask you the questions they do up front before they get involved with you. Hopefully, this will provide you with a full understanding of just how the agents work. Here is that article....
I was sitting in a CE class recently, enjoying the sharing of business war stories with other Realtors® during one of our class breaks, when the subject of "buyer loyalty" came up. As if on cue to some important part in a play, there arose a great wave of rolling eyes, followed by long, painful moans and groans from all the agents who were within hearing distance of our conversation. There was no question...it was a familiar battleground all of us had experienced before....buyers not giving an ounce of loyalty to us, even after giving them mounds of information and perhaps hours of our time in showings. It was also apparent that it really didn't matter if you were a seasoned veteran or a first year agent, for the casualties of foiled loyalty knew no bounds.
One of the more experienced agents in the group proceeded to state that she had dealt with this situation so many times before that she simply began asking the question up front to her buyers, "Do you know how I get paid?" She noted that most of the time after she asked that question, her buyer's would become very still, get that "deer in the headlights" kind of look and swallow a little bit more intensely before actually responding in a stumbling voice, "No". Of course, with the precision of a well guided arrow, the agent would state just how an agent does gets paid and that with the loyalty of the buyer to the agent, both parties were in a win-win situation. What the agent was actually accomplishing by asking this simple question first, was planting seeds of buyer loyalty right up front, before she even showed the first property.
(Cathy's Note: Now some agents will have their buyers sign an agreement up front stating that for a certain amount of time, the buyer will not use another agent to search for properties. Read on and you'll see why this would be a smart business move for the agent and why this could help the buyer find his or her home more efficiently.)
To say the very least, I was amazed that buyers would have that kind of reaction when asked if they knew how the Realtor® was paid, so I decided to begin my own experiment. For the next couple of weeks, each new buyer I came across I would make sure to ask the question upfront, "Do you know how I get paid?". To my surprise, each of them responded just like the agent had indicated in my CE class. It was like having the same scene play over and over again! What an "ah ha" moment to think that these buyers, some of which had owned properties before, simply did not know the answer to my question. By actually going through that drill, I was able to connect more meaningfully to my buyers and create a much more loyal client.
Sometimes buyers often like to call the Realtor® that is listing the home they would like to see, thinking that there is an advantage to connecting with the listing agent. Buyers beware, as that agent is representing the SELLER. Let me repeat that......that agent is representing the SELLER! If you want full representation to get the most out of any purchase in this market, you would fair well staying with one experienced agent who can put YOUR OWN BEST INTEREST FIRST.
So buyers, forgive us for not addressing this question up front so you truly understand how we get paid because it helps you understand why we ask the questions we ask whenever you call. We want to help you navigate this market successfully, provide insightful information on each property of interest, and work for your best interest on each and every transaction you engage in, but we need your loyalty to do that, as we do not get paid until closing. We do not get paid by our brokerages with any salary, nor do we get paid by you. We get paid by the SELLERS at closing, which is a great deal for you!
At closing, a commission check is cut to each agent's brokerage, not to the actual agent. The agent takes this check back to their broker and the brokerage takes a certain percentage amount from that check with the remainder given to the agent. Since each agent is actually "self employed", all expenses and taxes come out of these payments before the agent actually receives their "payment for services rendered".
So all the gas, time and effort extended upfront on your behalf is not prepaid or covered by any salary. Therefore, when you leave us and move on to the next agent, you have truly left us with our own bill unpaid. When you ask a Realtor® to show you a property because your own agent is on vacation, or you only intend to use us to see one property, you will now understand why it is not a good business practice for us to give free showings to someone who is not fully engaged with us as an active client because it is asking us to work for you free with no payment at the end.
So now that you know how agents get paid, it would be beneficial for you to first find an experienced agent who exhibits great communication skills and knowledge of your local market. You will not only reap the benefits of having the agent's professional guidance absolutely free, but you will also enjoy a streamlined process to finding your dream home while having a qualified agent at your side to represent your best interest on any property.
Realtor® is a registered name given to an agent that is a member of the National Association of Realtors® and is held to a strict Code of Ethics. The name "agent" refers only to an active licensee. All Realtors® are agents, but not all agents are Realtors® .