What Your Agent Isn’t Telling You
When you buy or sell a home, chances are that your financial focus will be on your own money. That’s understandable, considering the amounts involved, and some agents barely discuss fees with their clients. But the truth is that no matter how the purchase or sale happens or how much money is changing hands, your agent stands to make a considerable fee. You should understand how they get paid, and where it comes from—not only for your protection, but theirs.
It starts with the sellers’ agents’ fees
Real estate agents work on 100% commission, usually a percentage of the sale price, and that percentage is set between the sellers and their agent. In our market, that amount is typically 5-6%. So, to do a little quick and basic math, if you sell your home for $1,000,000 and the commission is 5%, that comes out to $50,000. That sounds like a pretty good return for a single sale. But wait, there’s more.
That commission doesn’t all go to the seller’s agent. Usually, the seller’s agent and the buyer’s agent split it. So now our hypothetical seller’s agent fee is only $25,000. Still, that’s not too bad, right? Except that—you guessed it—this fee gets split up a little more.
The agent has to further share the commission with the brokerage firm he or she works with (Donnelly + Co., for example). Just how much does the brokerage take? That varies, and the exact number is usually kept between the two parties.
More about the buyer’s agent
There’s an important difference between how and when the buyer’s and seller’s agents get paid. A seller’s agent is almost assured of a commission, because in almost every case, the property will sell sooner or later, and no matter who sits across the table, the commission goes to them. But it’s not so for a buyer’s agent. When you shop for a home, you might see three homes before you find one you like—or you might see 10, or maybe 50. Or you might see dozens and then decide the market is too pricey and that you want to keep renting for a while.
A buyer’s agent doesn’t make a single dollar until a sale closes, so all the work he or she does—all the research, meetings, and of course dozens of showings—all add up to nothing if you don’t eventually use them for your home purchase. Buyers have to look out for themselves first, of course, and every buyer’s agent knows how it works. Nevertheless, it’s useful to understand that buyer’s agents are especially reliant on the loyalty of their clients to ensure that they don’t wind up working for free.