Here’s a quick breakdown of how real estate agents get paid.
How do real estate agents get paid?
1. To answer that question, let’s first address who pays a real estate agent. Roughly 99% of the time, it’s the seller. In fact, in my 12 years as an agent, I can’t ever remember a transaction where the buyer paid an agent’s commission. This doesn’t mean it never takes place, but it’s not customary in our Northeast Florida market.
There are two portions of each commission the seller pays: the portion that goes to their listing agent and the portion that’s offered to any buyers’ agents in the area so that they bring in interested buyers.
2. All agents and brokerages have to abide by the Sherman Antitrust Act, which is intended to prevent price-fixing. In other words, it’s illegal for one real estate company to go to another company and establish an average commission rate for a transaction. If you ask an agent what the average commission is and they’re finicky about answering, that’s why. There is no such thing as an “average” commission. Each brokerage sets their own commission rate.
3. It’s also important to note that agents don’t get paid directly. The commission the seller pays goes straight to the agents’ brokerage. The agent is then paid a portion of the commission from the brokerage. So, different companies may have different commission rates. And different agents within the company may have different commission splits. This is another thing that’s negotiable.
4. Finally, there is a difference between cost and value. Some agents might be a great “value” for the “cost.” Others, not so much. For example, Gardner Minshew II, the Jacksonville Jaguars’ current starting quarterback (though not for long), will make about $700,000 this year. He ranks 12th in terms of overall quarterback rating. One slot behind Tom Brady, but way ahead of Jared Goff of the Los Angeles Rams. Jared’s QBR ranks 27th in the league, but he stands to earn $26 million this year. Basically, the Jaguars are paying Minshew 37x less than what the Rams are paying Goff, and getting better overall results!
That is to say, there’s a difference between what you pay and the value you receive. To find out what value an agent brings to the table, research their experience and performance history: how many homes they sell per year, how their sale price compares to each home’s list price, what their average days on market is, etc.
If you have any questions about this or any other real estate topic, don’t hesitate to reach out to me. I’d love to help you.