So...How do realtors get paid?

Question

“Possible” first time homebuyer/newbie to all things real estate. Get ready for a doozy of a question.... I was under the assumption that my realtor gets paid from the closing costs. I now know that’s wrong. So... how does my realtor get paid when I’m buying a house? Do I pay them a separate commission? Just want to factor in all of the cash going out of my bank account before I look for a house. Thanks!

Mike McCarthy · Answer

@Theresa Harris got it - but just as a pint of clarification, the agent USUALLY gets paid by the seller. Any seller that uses a realtor contracts for 3/6 months listing the property and if/when it sells, the seller pays 3% to the sellers realtor and 3% to the buyers realtor. (Percentages can be negotiated). It’s important to understand this because this is why the seller’s realtor will try to get you to buy the house through them (if you’re not already working with a realtor - they aren’t allowed to poach) - if they represent both the buyer and seller, they get 6%!Also, there are times when a property is listed by the owner (FSBO), and may not include a buyer’s realtor commission or a really low commission. Some realtors will steer you away from these properties and try not to show them, since it’s not worth their while. All the reasons you should find a good realtor to work with!!

Theresa Harris · Answer

@Amanda Thomas Your realtor is paid through commission when the house sells. It is part of the contract the seller makes with their realtor and covers the fee for both the buyer's agent and the seller's agent. You do not pay the realtor directly when you are the buyer. It comes from the sale of the house and is paid by the seller...or rather through their lawyer.

Dan Maciejewski · Answer

@Amanda Thomas -- my Buyer's Consultation goes over all of your questions -- I quoted the FSBO quote because I cover this and so does my Buyer-Broker agreement. I have a fee that I charge when I work with buyers that is offset by the selling agent's co-op commission. So usually I (and most Agents in most markets) are an amazing resource that is free to the buyer. The exception is when you buy a home from someone that is not willing to pay my commission. There are rare FSBOs that claim to refuse to pay a buyer's agent. That is when a buyer would have to pay for my services. That rarely happens. The last gentleman that said my buyers would have to pay for me was a gem! He was way overpriced (my buyers knew that) and when they found out that he wasn't paying, they said "Next!" They went under contract on another house on that tour, the seller lost himself a qualified buyer, and now that he's listed with an agent, is going to pay 2+% more than he would have had to pay me!

Erik W. · Answer

@Marc Winter, yes, you can always pay the agent whatever/however...and as you said as long at the contract and settlement document specify how that works it's really up to whatever parties mutual agree on.I've heard people insist the Seller pays the commission...well, yeah, technically they do, but ultimately it's the Buyer's money that makes it possible for the Seller to pay and the Seller knows if they have to pay the Agent $X, then their bottom dollar becomes whatever they want in their pocket after all is said and done + $X. So really...potaytoh, potahto. The bottom line is agents get paid somehow, and that typically increases the total transaction cost around 6% (developed residential) up to 10% (land, commercial).@Amanda Thomas, it may be parsing words, but technically the agent's commission is not part of the closing costs. Closing costs are often set fees for specific services such as lender points, deed recording fees, title search fee, etc. An agent commission is only paid if/when an agent is used. 10-20% of real estate transactions happen outside the MLS or thru an attorney's office, in which case there is no commission. There's another category called "prepaids" you'll want to get familiar with as well, which are the taxes and hazard insurance premiums a lender requires to be paid in advance so as to ensure their collateral (your home) isn't go to be a loss if you don't pay the taxes and the Govt comes and takes it away or it burns down in a fire. But, to save time...often we just lump commission, fees, and prepaids all under one umbrella of "closing costs." It is common for Buyers to ask Sellers to cover some or all of their "closing costs and pre-paids" UP TO a set amount, which is especially helpful for cash-poor buyers who don't have much. Not that I advocate being a cash poor buyers, but it is one way you can become a homeowner with literally zero money. Often, if a Seller agrees to pay closing costs, they will not negotiate down on sale price, though, because they have a "Bottom line" target they want to hit, and whether they get that through paying your closing costs or giving you a discount (or a combo of both), they know they want $X at the end of the day.

Marc Winter · Answer

Wait--what about buyer's agent? I've had properties sell where the buyer's agent was also compensated directly from the buyer. As long as it's all disclosed up front and documented on the HUD-1, it's all good.