Updated May 10th, 2019
The answer seems simple. The real estate agent lists a house for sale, and you like it. Next thing you know you’re negotiating a price with the agent, the seller accepts, the house closes, and the seller pays six percent to the broker as their fee. Done, right? Unfortunately, it is not that simple.
There are so many ways an agent might get compensated these days. Some of the newer fixed-fee and fee-for-service listing brokerages are paying their agents a salary, rather than a commission. Some brokerages pay their agent a base salary and a lesser commission percentage for each transaction. Here are all the ins and outs of the different types of agents and how they get compensated for their stellar services.
Two Types of Agents
There are two types of agents: buyers’ agents and sellers’ agents. If you spot a house you like and call up the agent to see it, you’re dealing with a sellers’ agent. That agent works for the seller--not you, the buyer. The seller typically pays the real estate agent fee to the broker who, in turn, pays the agent who worked to bring the buyer to the transaction.
Broker commissions typically take one of two forms: flat rates or a percentage. The flat fee is most straightforward to calculate. How it happens is you agree to pay the agent a specific amount at the time of closing. The trick with a flat broker’s fee is that the contract must precisely define the event that triggers the broker’s right to a commission. So basically, you want everything in clear writing to avoid a situation where the broker believes that is a fee is due but the company disagrees.
Traditional Broker/Agent Split Models
A broker compensates the vast majority of real estate agents by sharing the gross commission amount that the broker collects.
The 100% Commission Split Model
As the name of this compensation model suggests, the agent gets the entire commission. This model pays 100% to the agent because the agent is paying a “desk fee” or monthly office fee. This can be quite a steep feat every month, but experienced producers prefer it because their costs are capped while their income is not.
Referral Fee from One Brokerage to Another and Agent Split
Referrals come “off the top” before the commission is split. The referral is a negotiated percentage paid to another company for sending a client, either as a seller or a buyer.
Percentage Paid to Real Estate Franchise for Business
Some of the significant franchises charge a percentage fee “off the top” of each commission to their franchisee brokerage. This fee could come off the commission before the broker receives it and splits with the agent.
Who is paying the agent and how they are getting paid are two of the most common real estate questions we have. It’s important to iron these matters out--in writing--before you begin the processes of closing on a house.