If you are thinking of becoming a real estate agent or broker, you might be wondering how they make money. Real estate professionals work on commission, which means they get paid a percentage of the sales price of a property when they help a client buy or sell it. But how much do they make, and who pays them? Here are some answers to these common questions.
How Do Real Estate Brokerages Make Money?
The Commission Split
The commission is usually 5% to 6% of the final sales price of a home, but it can vary depending on the market conditions and the negotiation between the seller and the listing agent. The commission is paid by the seller at closing, and it is split between four parties: the listing agent, the listing broker, the buyer's agent, and the buyer's broker.
The listing agent is the one who represents the seller and markets the property. The listing broker is the one who oversees the listing agent and provides them with training, tools, mentorship, and legal compliance. The buyer's agent is the one who represents the buyer and helps them find and purchase a property. The buyer's broker is the one who oversees the buyer's agent and provides them with similar support.
The commission split depends on the agreements that each agent has with their broker. For example, a listing agent might get 60% of the commission, while the listing broker gets 40%. Similarly, a buyer's agent might get 70% of the commission, while the buyer's broker gets 30%. These percentages can vary depending on the experience, performance, and market share of each agent and broker.
To illustrate how this works, let's say a home sells for $500,000 and has a 6% commission. The total commission is $30,000, which is divided equally between the listing side and the buyer side. Each side gets $15,000, which is then split between the agent and the broker according to their agreement. If the listing agent gets 60% and the listing broker gets 40%, they will receive $9,000 and $6,000 respectively. If the buyer's agent gets 70% and the buyer's broker gets 30%, they will receive $10,500 and $4,500 respectively.
Other Sources of Income
Besides commissions, real estate brokers can also make money from other sources. For example, some brokers charge their agents fees for desk space, marketing materials, technology tools, or administrative services. These fees can be fixed or variable depending on the broker's business model.
Another source of income for brokers is referrals. Brokers can refer their clients or agents to other professionals who can help them with their real estate needs, such as lenders, inspectors, appraisers, attorneys, or contractors. In exchange for these referrals, brokers can receive a fee or a percentage of the service provider's fee.
Finally, brokers can also make money from their own deals. Brokers are licensed to buy and sell real estate independently without working under another broker. If they do so, they can keep 100% of the commission from their transactions.
In summary, real estate brokerages make money by earning commissions from their agents' sales and from their own deals. They also make money by charging fees to their agents or by receiving referral fees from other professionals. The amount of money they make depends on various factors, such as market conditions, negotiation skills, commission splits, business expenses, and number of transactions.
