Strictly for simplicity, the following example is based on the sale of a $100,000 house at a 6 percent commission rate. Real estate offices are independent and commissions can be negotiated. The percentage varies all over the country. In Dallas, commissions are typically paid by the seller and are split between the listing brokerage and the buyer's brokerage.
Let's say the broker fee at 6% on a $100,000 property is $6,000. That amount is deducted from the seller's proceeds at closing and paid to the seller's brokerage. That brokerage then pays the buyer's brokerage and each brokerage pays their agents.
In this example, the broker fee of $6,000 is divided into four parts, but it is not always 4 equal parts. Each real estate brokerage has agreements with their agents regarding the percentage split. The commission split between agency and agent could be 50/50, 60/40, 70/30, etc. For simplicity, let's say the split is 50/50 and each party gets 25 percent of the fee. The seller's brokerage would get 25%, the seller's agent would get 25%, the buyer's brokerage would get 25% and the buyer's agent would get 25%. So this listing agent would earn $1,500, of the $6,000.
Out of the $1,500 earned by the listing agent comes their marketing expenses (photography, internet displays, printed material, staging, signage, etc), advertising costs, license fees, showing service fee, keybox fee, MLS costs, insurance, as well as other general overhead costs of doing business (like phone, office, vehicle costs, association dues, education expenses, taxes, etc).
When you consider how long it may take a property to sell or to purchase a home, how much an agent earns 'per hour' can vary dramatically. And if a property doesn't sell, either the sellers reimburses the agent for their expenses (which is specified in advance in the listing agreement)or the agent looses the time and money they put in to trying to sell the property.
One of the reasons that agents and brokerages make 'the big bucks' is because they are taking the risk in trying to sell the property. If they don't sell the house, they don't get paid. Some agents offer to list a house at an hourly rate plus expenses. My hourly rate is $250 with the first 10 hours paid in advance and in the first month of listing it typically costs about $800+ for expenses. Most sellers prefer to pay a percentage of the sales price at closing.
You can see that a few million dollar sales each year where the agent might have earned about $15,000 each is not enough to make them rich. And since agents are considered independent contractors, they pay their own taxes and social security like other small businesses.
When looking over the closing statement, a seller will see several items besides the brokerage fee. These are not controlled by the agent or broker and can include title company policy and expenses, state fees, prorated property taxes, flood certificate, escrow fee, attorney fee, HOA transfers, etc. In addition, any mortgages owed are also paid off at closing and included in the closing statement.
When you hire a Realtor, one of the most valuable attributes you are paying for is their expertise. The agents who earn a good living are highly skilled in real estate transactions, aware of what is happening in the market, know reputable service people, are familiar with statistics and trends, and are experts in document details and negotiating. There are different levels of service, expertise and marketing systems used by Realtors. All of these are generally reflected in the fee they charge.
Dallas has thousands of Realtors and they are usually paid by the seller. Closing day is payday for a real estate agent.
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