First Time Homebuyers Need To Know How Realtors Get Paid

Understand how your agent gets paid when you buy your first home

Most people do not understand how Realtors get paid, particularly first time homebuyers.  Realtors are paid on commission, and commissions are only paid when a sale closes.  So, there is no payment for all the work that is done for people who do not buy a property.

Also, a Realtor only gets paid when his client buys or sells a house.  So, if one Realtor shows a first time home buyer many properties, but another Realtor takes over representing the buyer, writes up the sale and closes it. the second agent gets paid, even though the first agent did some of the work.  If you look all over town with one agent, then buy from another agent, the first agent did all that work for nothing.   First time homebuyers need to appreciate how commissions work in order to understand why it is so important to your Realtor that you are a loyal customer.  If you do not show loyalty, they cannot devote their full time and effort to finding the best homes and negotiating the best deals.

Some first time homebuyers see the commissions paid at closing and think, “Wow. That’s a lot of money.” And the total amount paid usually is, considering that the purchase price of real estate typically involves many thousands of dollars. But what looks like a windfall is actually divided among multiple principals. Let’s look at a typical transaction, where the seller is represented by a Seller Agent, and the buyer by a Buyer Agent.

A closing statement (HUD) shows the commission as being split into two portions—part of which goes to the firm which the Seller Agent works for, and the rest to the firm which the Buyer Agent works for. Most often it is split equally between the two firms, but in Wake County North Carolina it is typical that the selling firm receives a higher percentage. You might note that the real estate fees earned from the sale of the property are paid by the seller.

Now here’s where it gets complicated. Since both firms pretty much divide earnings the same way, we’ll focus on what happens to the funds going to the firm representing the buyer. Any time a firm receives funds from a real estate transaction, it takes a bit off the top for their fees before passing the remaining funds to the actual Realtors who did the work. Now, if the Buyer Agent got their client as a referral from another Realtor, then a referral fee is first paid to firm of the referring agent. Finally, any remaining funds go to the Buyer Agent. However, most agents work as part of a team, thus those funds are actually split between the team leader and the Buyer Agent.

Whew! So, as you can see, real estate commissions are used to compensate every firm and agent involved with a transaction. And, perhaps more importantly, nobody gets paid anything until the property closes.