Real estate agents work for real estate brokerages (like FC Tucker), and they earn money via commissions when they assist buyers and sellers buy or sell homes.
REAL ESTATE MYTH
Agents must be rolling in the cheddar. Word on the street is that some of them make 6% or even 7% commission on every house they sell! Not exactly… Most agents are not living the lavish lifestyle you may assume they are. The income is much more modest than you might expect. Real estate agents have a median income of $43,990 with the top performers making more.
First, Let’s Go Over Some Terminology
When brokerages hire real estate agents they typically set them up on what is known as a commission split. This means that when a commission is paid to a real estate brokerage, it’s split between the brokerage and the real estate agent. Some common commission splits are 50/50, 60/40, 70/30 & 80/20. This will vary from brokerage to brokerage and even from agent to agent. There may be a brokerage with 5 real estate agents who all have different commission splits.
Generally speaking, in any given real estate transaction there will be between 1 and 4 real estate agents or brokerages involved in the transaction — all of whom expect to be paid.
Listing agent – This is the person who meets with a homeowner who is interested in selling their home. This person works for a real estate brokerage. This person is then hired by the sellers to sell their home. The sellers signed a contract which explained the amount of money they were going to pay this listing agent’s brokerage to sell their home. This contract is known as a listing agreement.
Listing brokerage – All real estate agents work for real estate brokerages. Every real estate brokerage has a licensed real estate broker who is in charge of the real estate agents working at that brokerage. Every real estate agent you meet will work for a brokerage like one of those mentioned. The brokerage that employs the listing agent is the listing brokerage.
Buyer’s agent – This is the real estate agent who meets a person who wants to buy a home. This agent will show a potential home buyer homes that are listed either by themselves or other listing agents.
Buyer’s brokerage – The brokerage for whom the buyer’s agent works.
So How Does It Typically Play Out
A house sold for $225,000.00 The sellers agreed to pay a commission of 6% to their agents brokerage. That amount is $13,500.00.
The seller’s brokerage agrees to pay 50% of the commission to the buyer’s agent and his brokerage. The seller’s agent is on a 50/50 split with her brokerage and buyer’s agent is also on a 50/40 split with his.
Here is the breakdown of the commissions earned by all who were involved.
- Total commission paid by the sellers $13,500.00
- Total commission paid by the buyers $0.00 (buyers do not typically pay agent commissions)
- Seller’s AGENT commission $3,375.00 (this is gross income for the agent)
- Seller’s BROKERAGE commission $3,375.00
- Buyer’s AGENT commission $3,375.00
- Buyer’s BROKERAGE commission $3,375.00 (this is gross income for the agent)
What Are The Agent’s Business Expenses
- Income Taxes
- Office Space And Supplies
- All Social Security
- BLC/MLS Monthly Fees
- Board and License Fees
- Health Insurance
- All Auto Expenses
- All Advertising
- Technology Equipment and Services (Including Phone and Internet)
- Required Continuing Education