Understanding your Payment as an Agent
Before you jump into the world of real estate as agent, it’s important to understand how real estate agents earn their pay! The process is a bit more complicated than many people think, and there are a few things that you should ensure that you understand! First, you should familiarize yourself with how real estate agents are paid in terms of commission and commission splits! Additionally, you’ll want to ensure that you understand the basics of escrow and how this will impact when you receive your pay! Lastly, you’ll want to understand the breakdown of your pay—there are quite a few people who work to ensure that homes are bought in sold, so you won’t be the only one receiving a percentage of the sale price!
What is Commission?
The first thing you should know about real estate agents is that for most, their earnings will come almost entirely commission. Commission is a negotiable percentage of the home sale price that is paid out to those involved in the sale of the home in question. In most cases, the commission that is agreed upon is somewhere between 1% and 10% percent of the total sale price, although 5% and figures close to it are the most common! As such, this figure will be negotiated upon between the seller and the broker, and then the broker will have a previously agreed upon commission split with the agent! In many cases, there will be multiple people involved in the sale of a home, and thus the commission will be split multiple ways (which we’ll touch on later in this article). The most important thing to understand is how your commission works in order to understand how you’ll be paid as agent!
Escrow is an important concept that every agent must be familiar with for multiple reasons, but for the purpose of this article it’s important to understand how escrow will impact when you will get paid! Simply put, escrow is when a third party is used in the transaction of something valuable—or, in this case, a home! In homebuying, an earnest money deposit is a check written by the prospective home buyer to the escrow holder, who can then refund said money, apply it to the purchase price of the home, or pass said funds onto the seller if the buyer fails to meet certain requirements. Escrow is real estate is designed to protect the buyer and ensure that the seller will get paid in order to ensure the smoothest transaction possible. An agent, you won’t be receiving your commission until the escrow has been closed upon and transfer of property ownership to the buyer is completed!
Now that you understand the basics of how and when you will get paid, it’s important to understand shared commissions, as you’ll encountering them quite often! A shared commission is one that is split between multiple people, and this is incredibly common in real estate because it takes more than just a single agent to complete a home transaction! In most real estate transactions, commission will be split between the following people: The listing agent, who took the listing from the seller; the listing broker, the broker for whom the listing agent works; the buyer’s agent, the agent who represents the homebuyer; and lastly the buyer’s agent’s broker, the broker for whom the buyer’s agent works. For example, let’s say that you’re the agent representing the buyer who purchases a home for $250,000, and your commission is 6%. That 6% is equal to $15,000, but that is split 50/50 with the seller’s agent, so now your commission is $7,500. In addition, you have a previously agreed upon split with your broker, which for the sake of this example will be 60/40. After said split, you end up with $4,500 and your broker picks up the other $3,000. Examples like this will be extremely common for you as an agent, so it’s important to understand shared commission and how the overall commission can be broken down and distributed!