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How Realtors Work

By: Dave Roos  | 

How Realtors Make Money

A Realtor must share part of his commission with his or her real estate firm or broker.
A Realtor must share part of his commission with his or her real estate firm or broker.
Allen Danahar/Digital Vision/Getty Images

Realtors make money on commission: They only get paid when they sell a house or help someone buy a house. The standard Realtor commission in the United States is between 5 and 6 percent, which is evenly split between the seller's agent and the buyer's agent [source: Linden]. The person who sells the home is responsible for paying the entire commission.

How much of that commission the Realtor actually takes home depends on a few factors. Many Realtors work for small or large real estate firms. It's common for a Realtor to pay 30 to 50 percent of his or her commission to the firm, leaving as little as 1.5 percent in the Realtor's pocket [source: Lending Tree]. Even if a Realtor doesn't work directly for a firm, he or she might work with a real estate broker who provides the Realtor with referrals. That broker will also want a cut. Self-employed Realtors can keep all the commission, but they run the risk of losing business to larger competitors.

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Commissions are negotiable, although NAR members are strongly encouraged not to budge under five percent. The idea is that the level of service offered by a certified Realtor is worth the full commission. In fact, the NAR claims that in 2005, homes represented by a certified Realtor sold for 16 percent more than homes that didn't use a Realtor [source: National Association of Realtors]. That said, when the real estate market gets really slow, even certified Realtors are tempted to lower their commissions to sell more homes.

Real estate is an incredibly competitive business where very few Realtors are likely to get rich. In 2006, the middle 50 percent of real estate agents earned between $26,790 and $65,270 a year in the United States [source: Bureau of Labor Statistics].

The average salary of Realtors doesn't change that much between hot and cold markets [source: Goolsby]. That's because in hot markets, the profession is flooded with real estate agents who think they can make a quick buck. With so many agents in the field, it limits how many homes any individual agent can sell. In a colder market, fewer total homes are sold, but fewer agents are selling them, so the earning potential evens out.

For even more information on real estate and personal finance, dig into the links that follow.

Realtor FAQ

Do all Realtors charge the same?
The standard Realtor commission in the United States is between 5 and 6 percent, which is evenly split between the seller's agent and the buyer's agent. However you should always ask a Realtor what their commission is when you start working with them.
Is a Realtor the same as a real estate agent?
The terms are often used interchangeably, but there is one major difference. A real estate agent has obtained a state license to assist consumers in buying or selling properties. However, a Realtor has gone a step above and become a member of the National Association of Realtors, an organization that holds members to high ethical standards and trains them in the most effective practices.
Is a Realtor worth the money?
As a buyer, working with a Realtor often won't cost you anything out of pocket, so it's certainly worth it. As a seller, you'll have to pay a commission, which may cut into your profits. However, Realtor tend to be worth their fee, with valuable skills in appraising a house, marketing, and negotiation. Many sellers find their houses sell faster and for more money when they've worked with a Realtor instead of attempting a private sale.
What are the duties of a Realtor to a buyer?
A Realtor acts a representative for buyers and acts in their best interest in a client relationship. They help find the best property that meets their client's needs within a given budget, take clients to view potential properties, make offers, and negotiate terms of the purchase.
Do you pay a Realtor if you are the buyer?
If you're a buyer, you do not directly pay your Realtor, as they are paid from a commission paid by the seller when you close on a home. However, Realtor fees are considered when sellers and their Realtor decide on a listing price.

Originally Published: Sep 25, 2008

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More Great Links

Sources

  • Luhby, Tami. CNNMoney.com. "For this broker, foreclosures spell boom." June 11, 2008.http://money.cnn.com/2008/06/11/news/economy/mcilvaine/index.htm
  • National Association of Realtors. Realtor.org. "Why Use a Realtor"http://www.realtor.org/home_buyers_and_sellers/why_use
  • Bureau of Labor Statistics. Occupational Outlook Handbook, 2008-09 Edition. "Real Estate Brokers and Sales Agents"http://www.bls.gov/oco/ocos120.htm
  • National Association of Realtors. "2008 Code of Ethics and Standards of Practice"http://www.realtor.org/mempolweb.nsf/pages/code
  • National Association of Realtors. Realtor.com. "Real Estate 101: Why Use a Realtor?"http://www.realtor.com/basics/allabout/realtors/why.asp
  • McLinden, Steve. Bankrate.com. "Real Estate Adviser: Is Agent Commission Negotiable?" August 10, 2008.http://www.bankrate.com/brm/news/realestateadviser/20080810-agent-commissions-a1.asp?prodtype=mtg
  • RealEstate.com. "Real estate commissions: What you need to know"http://www.realestate.com/TipsAndTools/Agent-Commissions/Real-estate-commissions-What-you-need-to-know.aspx
  • Goolsbee, Austan. Slate.com. "Bubble-lusions: Why Most Real Estate Agents Aren't Getting Rich." August 26, 2005http://www.slate.com/id/2124506