How to Pay the Real Estate Agent

Buying or selling a home is a significant financial event, and most people work with

real estate agents to navigate the process. Most real estate agents make their

income through commissions based on a percentage of the property’s selling price.

The amount of money an agent makes varies based on their level of expertise and

the number of sales they complete, but they also depend on their agreements with

their sponsoring brokers to help them determine how much to charge for their

services.

Real estate is a commission-based industry, so it’s not uncommon for new home

buyers or sellers to have questions about how exactly their agent’s salary is

calculated. The median gross income for a full-time real estate agent and broker in

2017 was $39,800, according to the National Association of Realtors, so it’s

important to understand how a real estate agent or broker earns their pay.

How to Pay the Real Estate Agent

While many of us understand that real estate agents must be paid for their services,

not all of us are aware of how a real estate agent’s fee is structured or where the

money comes from to cover those fees. As an aspiring real estate agent, it’s

important to know how your compensation is calculated and how you can negotiate

Typically, a seller pays the real estate commission, and the seller’s and buyer’s

agents split the total. A listing broker is usually responsible for calculating and

collecting real estate commissions, so it’s important to find an experienced broker

who will be willing to work with you to set the right terms for your transaction.

In addition to real estate agent commissions, the closing costs for a sale can add up

quickly. These additional expenses include things like title insurance, escrow fees,

appraisals and lender fees. Closing costs can sometimes run up to 2%-5% of the

property’s selling price.

Is the Real Estate Agent Fee Negotiable?

While the fee isn’t always negotiable, there are certain circumstances when a real

estate agent will offer a discount to sell a home. This is a great way to increase the

likelihood of your home’s sale and attract potential buyers.

As a buyer, you can also try to negotiate your real estate commission with the agent

you’re working with. While the amount of the real estate commission isn’t normally a

negotiation point, you can ask for a lower flat fee or a reduction in other fees that

are part of the home-selling process, such as open house fees and marketing costs.

Lastly, it’s important to note that real estate agent fees are tax-deductible. This is

because most real estate agents are independent contractors and not employees,

meaning that their salaries are considered self-employment income. Those self employment incomes are then reported on your annual taxes.

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