Why do Real Estate Agents Get Paid so Much?

Real estate agents get paid so muchSelling a house is expensive and much of the cost is a real estate agent’s commission. Real estate commissions are usually paid entirely by the seller and are significant. I am a real estate agent in Colorado and even though agents are expensive they are still well worth it. Real estate agents do not charge as much as they do because of the time it takes to actually sell a house. They charge a lot because it takes work and money to market, it is hard to get licensed and become a real estate agent, they have to pay for dues and insurance and real estate agents usually have to split their commissions with their broker.

The biggest reason a real estate agent gets paid so much is they are worth it! A real estate agent will usually sell your house for much more money than if you sold it yourself.

Why are real estate agents worth the commissions they charge?

A real estate agent’s main value is knowing the market value on a home. If a home is priced too low or too high, it can cost the seller thousands of dollars.  Price a home too high and it will stigmatize the home. Buyers start to wonder what is wrong with the home if it sits on the market even if the price has been reduced. Price a home too low and you could be leaving thousands of dollars on the table.

I hear stories about people who say they saved thousands of dollars when they sold their house by not using an agent; they sold the house in one day with multiple offers! If you received multiple offers on the first day, there is a great chance you underpriced the home and left money on the table. Most likely more money than the real estate agent would have cost. A real estate agent is an expert at pricing homes and a website like Zillow cannot be used as a substitute. I wrote an article about how accurate Zillow is, and it shows you need a local expert to price your house correctly.

Here is a much more detailed article on why you should always use a real estate agent to sell a house.

How do real estate agents make money?

In most situations, a real estate agent represents the buyer and seller of a home and both commissions are paid by the seller. This may not seem fair, but there is a very good reason the system works this way. Having the seller pay both agents’ commissions allows there to be a larger buyer pool and higher house prices. Here is a more detailed article on how real estate agents make money.

Why does the seller pay for the buyer’s real estate agent?

Buying a house is expensive and most buyers need all the cash they have to pay for the closing costs and down payments. If a buyer had to pay for their real estate agent as well, there would be much fewer buyers who could buy a home. With a bigger buyer pool, more houses sell and sellers can charge more for their homes. Even though the seller pays for the buyer’s agent, the seller makes more money in our current real estate system due to the higher house prices caused by more buyers.

How much is the real estate commission on a house?

This is a tricky question for me to answer because I am a real estate agent. There are no typical or set commissions; they are all negotiable. As a real estate agent, I legally can’t say the typical commission is such and such. Instead, I will link you to this article that explains commissions and tell you HUD pays a 6 percent commission to sell houses; 3 percent to the buyer’s agent and 3 percent to the seller’s agent. I have seen commissions on real estate both higher and lower, but remember there is no typical or set commission rate. Using HUD’s structure the seller would pay $12,000 to the real estate agents if their house sold for $200,000

Why does a real estate agent make so much money on one sale?

On the surface, it may look like an agent makes a killing by making $6,000 on each side of the sale of one home. A real estate agent may work 10 hours or less on the listing side, which would equal $600 an hour for listing and selling a home. That is a lot of money, but a real estate agent does much more than work directly on the listing of a home. Most likely the listing agent has to pay part of that commission to their broker which may cut in half what they actually take home equaling $3,000.

There are many more reasons why that $6,000 is not as much as it may seem on the surface. A real estate agent must get licensed, must take continuing education, must pay for MLS, must pay for board dues, must pay for insurance and must market themselves. There is a lot of overhead involved in being an agent and a real estate agent is not just charging for the time it takes to list a home. The real estate agent is charging for their experience and market knowledge that allows a seller to make the most money selling their house.

Most real estate agents do not sell many houses

The truth is the average income for a real estate agent is only $39,000 a year, which I discuss much more here. The reason most agents don’t make much money is they have to pay a broker, many work part-time and many do not sell a lot of houses. The average real estate agent sold 12 houses in 2012, which would equal only $36,000 a year if an agent was making $3,000 per sale like in our example. If you want to be a real estate agent, don’t be discouraged. There are many ways to make much more money than that.

Selling a house is not easy and real estate agents know how to do it best

Not only is it hard to determine the value of a house, it is not easy to complete the transaction. Many transactions are not completed even with the help of real estate agents. The state contract in Colorado is 17 pages long and there are at least five more disclosures that must be used. Most transactions involve financing which takes a knowledgeable lender and title company. A real estate agent can help a seller and buyer choose the best people to make sure everything goes smoothly and everyone does their job. 

Conclusion

It is expensive to use a real estate agent, but well worth it. Real estate agents go through a lot to become licensed, pay a lot of fees, must work under a broker and bring specialized knowledge that help sellers get the most for their home. If you are an investor and sell a lot of homes, it may be worth it to become an agent yourself. Otherwise, it will save you money to use a real estate agent.

53 thoughts on “Why do Real Estate Agents Get Paid so Much?”

  1. I’ve been a real estate Broker in commercial development and Landman for 25 years, when people ask if I’m a realtor, (notice lowercase) I laugh and so no i can think. Realtors are general morons and worthless in today’s market – There are a few individuals that hustle and own their deals but most are clueless, whiney and lazy. They’re generally sales and marketing people with very little understanding of complex deals. Prospect, show/list and sale and not a whole lot of involvement to closing in hands on areas as they are looking for their next deal. The commercial, industrial and tech sector of the real estate business is generally not licensed and handled by large companies that deal very little with the general public or they are connected individuals you’ve never heard of that are on a need to know basis. A lot of this sector is highly educated and salaried.

  2. I think paying a real estate agent 6% is a crime. I don’t think they should get a percentage at all and especially not of the actual selling price! First they don’t do any more work for a 300K house then they for a 600K house yet they make twngice the commision. Secondly, they have no stake or investment in the house. They didn’t buy it, they aren’t paying the mortgage, managing the maintenance and care of the house so why should they get a stake in the selling price? It should be a flat fee. Secondly, if a percentage were paid, it shouldn’t be for the selling price. Almost always, the seller has to pay off a mortgage loan. So the seller is paying the agent a percentage on money that they never had and that they have been paying interest on for some time and now have to pay the lender to satisfy the loan. In my opinion, the whole real estate agent commission model is criminal and needs to be changed as soon as possible.

    • Greg, there is no law that says you can’t pay a flat fee to an agent. You can try to negotiate anyway you want. You could pay them hourly upfront for the work they do if you wanted too.

  3. I worked as a loan processor and we had a deal set to close at the end of the month and there was a safety issue noted by the appraisal because of a crumbling open sided garage on the side of the house. We needed to push the closing because the appraiser was requiring the garage to be fixed or demolished. The realtor then pleaded with me to escalate the situation with the AMC (appraisal management company) to drop the requirement to have the garage fixed because “She needed the deal to go through before month end in order to make her house payment next month.” She went out and took additional pictures and videos of the garage trying to convince us that it was sound. Her Mercedes SUV was caught in some of the video…

  4. It’s pretty clear that the vast majority of the public sees real estate agents as crooks, especially for the higher priced homes in hot markets. Currently, the homes sell themselves because of the great housing demand. Your arguments of having greater efforts in selling higher priced homes are weak. Sure there may be some more work for the agent, but that additional work is usually not proportional to the commission. To get a percent commission on people’s life savings is outrageous. Agents often make more money than the owners in a sale even though the own spent years investing in their home. You always revert back to saying the owner doesn’t have to go with an agent and can always negotiate. But with so many dissatisfied customers, it clear that the real estate industry needs to change and improve. For higher priced homes, sellers should negotiate or seek FSBO otherwise, they will be taken advantage of. The system is broken and the industry should change to provide fairer service costs to sellers of higher priced homes. Saying you don’t have to use us is just not customer friendly. The public clearly doesn’t see the real estate agent service fees to be fair.

    • As a real estate investor I put my money where my mouth is and have an agent list all of my houses on my team. I would never sell my own house FSBO because it would sell for much less than the agents commission I would save. I often get my best deals from FSBOs because they are not marketed well and 75 percent of the buyers have no idea the house is for sale. From my experience there is a very small percentage of the public that do not like agents, but they have a loud voice. Sellers can negotiate any commissions, but you usually get what you pay for.

  5. I live near Seattle where the market is very hot. In this area I believe the agents are way over paid. It’s tough finding a home around here for even $700k, so the commission on that would be $42,000. The house would easily sell within 2 weeks and probably receive multiple bids. You can talk all you want about how the commission is negotiable, but it really isn’t. The realtor tells you what the commission is and tells you to take it or leave it.

      • As the seller of the home, I don’t really care if the agent has to split it with the broker or not. That isn’t my problem. My complaint about this industry is that every other industry has seen fees and commission come down due to the internet. The real estate associations have done a fine job protecting their commissions. The fact that in many states you can’t list on the MLS is proof that the industry strong-arms the country into thinking they are needed in the age of the internet. Negotiating with most agents is a non-starter and they really don’t do that much. The fact is, buyers and sellers could easily be match up online. It is long past time for the industry to move to a flat fee for service, you pay “x” you get “y”. Basically all I need is an MLS and I can show the darn home. I don’t need an agent to do that.

        • The MLS is created and all the data entered by agents. There are sites online that try to allow buyers and sellers to find each other, but there is still all the other stuff you have to worry about.

  6. Great article, why is it that agents don’t offer flat fees based on the home price range? I just can’t seem to understand why an agent would get double the money when they sell a home worth $150k vs. one worth $300k. I wouldn’t think there is double the work involved.

    • & By range I mean if your house sells for $100-200k you charge $x and if it sells for $200-$300 you charge $x+some. Just trying to understand it better.

    • There is no set guidelines for how they are paid. Everything is negotiable. The higher prices are the more competition there is, and the more costs there are as well. If you go to an area with house values around 1 million dollars, you might have agents average one sale a year because of competition and lack of sales. In other areas where the average price is $100,000 you might see agents average 10 sales a year.

  7. Full disclosure – I’m a Realtor. Sounds like people have had a lot of bad experiences with Realtors, which isn’t surprising considering that in Michigan one takes a 40 hour class, passes an exam and then is considered a Realtor. The average agent sells somewhere between 7-12 houses/year if that. I totally agree that the requirements for entry into the real estate industry are embarrassingly low and that the standards for the industry leave a lot to be desired. A true professional is someone that brings years of experience (selling hundreds of homes), non stop training, but above all, is a complete market expert, who knows to the day what is occurring in the market. They are excellent negotiators, excellent communicators, and bring insight and knowledge that comes from working 60-70 hours/week in this industry. The way information is handled and communicated by a true professional can often net a seller significantly more than selling by owner. (Something as simple as knowing if there were multiple offers or not on the last sale, determines how I advise a client). Handling the transaction from contract to close also takes skill and knowledge as purchasing a home is a very emotional experience for most people and they get overwhelmed. Many buyers and seller’s are very uncomfortable negotiating directly with the other party.
    So yes, paying a Realtor their commission is worth every penny, if you hire a professional.

    • You are probably right that most individuals have never really worked with a really good agent who did all the things you listed. That is the problem – most agents aren’t that great so the entire industry get a bad rap. I have sold and bought a few homes in my life – never have I had an agent I felt truly looked out for me. All they really wanted to do was get the house sold and get their commission. They aren’t fiduciaries and they have major conflicts of interest in the entire process from beginning to end.

  8. I sold my house using a paid for by the seller site. This cost me $1000 and I did all the showings, all the paper work, and all the marketing myself. The $1000 fee included a professional photographer and listings on the realtor website. Yes O spent a lot of time doing the extra details but, i sold my place for moe money then the identical condo unit in my building. They ised a realtor, spent the commission on a 525,000$ house while I spent half. I saved more and sold for more buy doing the 2-3 hours of work myself. Its a hassle but honeslty 2-4 hours for 20,000$ sign me up! Realtors r a waste and people should be more willing to list their home private and pay the listing fees themselves.6-7% on te firet 100,000 then 3% after that… RIP OFF. Especially when a realtor showed up in a Range Rover to see if I wanted to use his services….. ya ok. Dont use a realtor and selling your house will be a lot easier, less stress, more money. If you want something done right, do it yourself.. right?!

    • SO because someone has a Range Rover they are a rip off? If you add up the math here is what you saved.

      $525,000 times 6 percent commission (although you could negotiate that down to 5 in many cases or even less): $31,500 or $26,500

      But half of that commission goes to the buyers agent. if you want to sell for the most money you better be willing to pay the buyers agent. That means you saved $15,750 or $13,250

      You paid $1,000 for the MLS (which is not legal in all states) so you saved $14,750 or $12,250

      But then you said your agent was charging 6 percent on the first $100,000 and then 3 percent after that. That would only be $15,000 total or $7,500 after splitting with another agent. So if that is right you saved about $6,000 on a $500,000 plus purchase, did all the paperwork, all the showings, and all the negotiations. Hopefully you did it all right and it does not come back to bite you for much more money.

  9. My last Realtor’s I dealt with were the worst ever. I have worked with many Realtors and they ALL have an agenda and that is to get your money. This is common knowledge to anyone that has owned many homes. They will also hide facts from you just so the deal goes through and they don’t lose the sale. Trust me, it happened to me. It’s all about the money !

    • Sorry to hear that, sounds like you have run into some bad apples. It is illegal for agents to hide material facts, so if that happened you can report them to the real estate commission.

  10. I am a realtor and I will answer all these questions very easily with a question….Have you ever wasted a Realtors time? Looking in you can’t understand why your realtor seemed to make $6,000 off your sale. However, have you ever asked a question on Zillow or other sites about a listing, called and asked questions and didn’t use that realtor, or even worked with a realtor and decided not to buy or list with them? The truth is a realtor makes enough on one sale to pay the months bills because most of their time is unfortunately spent on other things that one on one selling. Someone has to be willing to meet you at a listing appointment to value your house not knowing if you will list with them, someone has to take their turn at the office or there wouldn’t be one, someone has to drive around the person interested but not sure without forcing them into a commission, and so on. We market ourselves, or name, answer calls and emails all day long and no one really understands the time it takes until you are an agent. I personally even thought this article missed some major points. No one goes to a restraunt and eats and then says that probably cost you $5 so I’m not paying $7. There are always more things to think about. Listing a house…..I have hours invested with finding the customers (which allows customers a place to start) I have to look at tax records, comps, etc before meeting with you and put together a folder. I go to the listing appointment, see the house, and go back to compare and analyze. I can probably ensure I will spend hours talking via email and phone with the person before the actual listing, and Lord knows I better be available or I lose the customer completely. Then I write up the listing agreement, which takes time, and meet you to sign. I dig up deeds, plats, covenants, etc…With possible trips to the courthouse. I make spare keys and set up Supra boxes, i schedule photos, upload, set up virtual tour, ensure the customer,I list online, which takes way more time than anyone thinks, then I answer every call and email for scheduling etc. I think if new ways…Newpaper, etc to get your house. Realtor caravan. Once we get an offer that feels like only the beginning. Negotiations, Inspections, more negotiations, every change takes a new form, sending everything to the attorney, checking in earnest, filing everything online for future records, by law, etc etc etc…..I would say minimum 50 hours total compared to going to work and clocking out, but regardless…….My point is…..This is the easy part of the job!!!! 50%of the time you are working because Realtors are needing to be there, be available, and ask questions,take out buyers who don’t buy, list things that don’t sell, and it’s a time consuming experience. If a realtor didn’t make enough when they finally got one sell, no one would be a realtor. I promise it is so much more…Than people realize! Then we pay 30% to our broker, so our company can offer what they offer and our listings can go online to Zillow etc. These websites arent just free for alls, online searches, joy rides to see property, etc. Someone pays for the whole thing’s, and trust me it’s needed….If Realtors weren’t around scams and bad paperwork would be everywhere(which then the closing attorneys would start charging 3% to close a house and do the job ) and the negotiations would cause chaos and probably shootings…..And all of it is paid for by the sell of a house. Thank you so much to everyone for that commission when selling, it is going further than you know!

    • Also I didn’t even mention all the time it takes to learn because someone has to be liable if the forms are wrong and a lawsuit is filed. In today’s time if everyone went FSBO, there would be lots of sue happy people taking advantage. But honestly, we have to know what we are doing, it’s required, so we spend hours learning and learning and learning! I really am an expert!

  11. Paying an agent a percentage of the sale of the house is weird, backwards, and borderline scam. Clearly, as many people have realized, they should be paid a flat hourly rate for the hours they work, or a flat fee for their service.

    As a software developer, I get paid either hourly, or salary. I never get a % of the sale of the software I develop. That would not make sense to any business owner to pay their developers a % of the sale. The same goes with property. The property owner should never agree to pay a % of the sale price, because that does not incentivize them to get the best deal for their buyer; in fact, it encourages OVER paying for a house, fattening the agents wallet.

    Stop the % based nonsense. Set you rate at $25-30 an hour, and call it a day. An agents service is not more valuable than an airline pilot, who has the lives of thousands in his/her hands each day, and even they get paid less per hour than most agents.

    Agents have the LUXURY of working part time. However, with the end of the % based commission scam, that luxury will disappear entirely, and force them to get paid only for the actual value they provide.

    • Hi John, People can choose how they pay an agent any way they want. There is no law or regulation that says real estate agents are paid on commission and you would be welcome to try to find a real estate agent to pay hourly.

      As a software developer are you the owner of the company or just an employee? I ask because I have talked to software companies about developing stuff for me and many of them do take a percentage of the profits for programs they develop. If you want to incentive your agent to get you a great deal I don’t see how paying them hourly will help at all. The agent has no incentive to find the buyer a house at all, they would have quite the opposite. They would want to show them as many houses as possible and hope they never buy one so that they keep earning their hourly wage. The biggest thing you are missing is the seller pays the buyers agent in most cases. So the buyer would have a much more expensive home buying experience if they had to pay their own agent hourly.

      How do you know what most agents get paid hourly? Have you figured it after they pay their broker, licensing fees, marketing, all their own benefits (they get none), gas, etc?

      • Mark, yes you have some good points.

        While it is true that the seller pays the commission, the seller could just as easily take that same % of commission as a discount off the house passed on to the buyer, since the seller doesn’t keep the money either way.

        Like you said, if an agent was paid hourly, then they have no incentive to sell it quick, rather a disincentive to keep showing it. I think a hybrid model would be most beneficial for all parties: hourly + small commission with a cap on earnings.

        For example: they could be paid $25 per hour, plus 0.5% of the sale price of the house, with a maximum commission capped at $3,000.

        Of course the numbers in this formula can change based on the deal, but I think it will protect buyers’, sellers’, and agents’ interests. That way, the agent gets paid even if it takes a long time, like a year, for the house to sell (they don’t have to wait to get paid), and on the other hand, if it sells fast, they get a commission still, but a much smaller one that isn’t taking excessive equity out of the buyers hand.

        Also, no we are not required to use an agent, but it is a monopoly because in order to list a house on any MLS database, you have to be a licensed real estate agent/broker. So if the MLS monopoly was abolished, and individual sellers could list directly on the MLS, then it would be a fair playing field where agents weren’t necessary to get the property in front of other buyers.

        • The reason the seller pays the commission is most buyers do not have much cash. They cannot afford to pay an agent, plus a down payments, plus closing costs. The system has evolved to help sellers get the most money they can while having the most buyers possible be able to purchase. If the sellers did not pay the agents, but the buyers did, there would be much less buyers and prices would be much lower due to demand.

          If agents were paid hourly, who pays for their licensing, the insurance, the MLS access, the split to their broker? Many agents have to pay 10 to 50 percent of their commissions to their broker who runs the office. Do they have to pay 50 percent of their hourly earnings now? Like I said before you could offer this type of incentive to agents if you wanted.

          There are other websites that list houses for sale, but what you will find is they are very slow and not easy to use. people can list their home for sale by owner on many sites, but most buyers won’t see the house and they will sell it for less. There are also many agents who will list a home on the MLS for a flat fee, but the seller has to do all the work and showings, etc. There are many different options for sellers and buyers, but the traditional model has held out as the best model up to this point to get the highest price for sellers and the most buyers able to buy.

  12. Expecting pay because of having to be licensed and educated is a poor argument. People get paid what they do because of value adding skills they bring to the table. As an Engineer I have lots of schooling under my belt, but it’s the skills I bring that I get paid for, not because I am Licensed and Educated. While a lot of the skills you mention are a good argument for why they deserve their commissions, I would leave having to be licensed and educated off the list as that is really just a means to an end.

    • Hi Jacob I agree that having a license and being educated is not a reason to get paid. You get paid on performance and value. However that is one roadblock for why more people do not become agents. It also allows agents to charge more or increase the value they add. For engineers they get paid an incredible amount to have a degree or the designation engineer. Look at what a structural engineer charges versus a contractor who may have the same knowledge, but not the degree.

      • That is not a roadblock. Every occupation and career needs standards of performance.

        Realtors, at least, need 60 hrs of class and an exam (that probably cost $200-500), which is very minimal when compared to others.

        Engineers earn a professional degree costing (100k-200k for undergrad) in order to prove some technical ability that others may not be capable of. Independent engineers need to maintain knowledge standards, take exams and gain experience. Their skills are required to maintain the safety of people and assets. You could argue that they had some socioeconomic status to get there, but that’s a different argument and might not even be a valid argument since many scholarships are geared toward the underprivileged.

  13. Very poorly argumented article. No real reasons but excuses. You mention cost of license, marketing, etc. how is that any different than any other commission job. Your only defence of people commenting negative things on your article is that people don’t have to use a realtor. Many realtors do their jobs from their computers and have alerts setup. The problem is that even if you are a great realtor and add value, most realtors are lazy and don’t do much to earn their commission. There are some that are great, but more that just show a house that they don’t even know anything about.

    • Hi Tony,
      It is not just the cost of the license, marketing and education, but experience. People are paid for their experience and knowledge. This is not a manual labor job that anyone could do and get the job done. You are right many agents are lazy just like many people in other jobs as well. The good agents make the money and have clients come back to them over and over and the lazy agents don’t last in the business long. If you don’t like you agent then choose another that is better.

      I listed many reasons why agents get paid so much. It is about saving and making more money for the client. It is all a numbers game. If you think you can make more money than the agent charges you in commissions on your own and it is worth your time then go for it. It is very simple.

  14. I understand we pay for their knowledge but they are paid too much, I found the house I want to buy not my agent, and I called the listing agent and viewed the home. So in a matter of minutes my agent filled in our contract with some internet program then he sent me a notice that I would have to bring 400 dollars to closing to pay his brokers office fees. Really? What has he even done to deserve his commission?

    • Why would you call the listing agent to view the home if you have an agent? That is your agents job and not their fault if you aren’t using their services. I have said it over and over people do not have to use agents if they don’t want too. There is no law that says so, but most people realize the value in having professionals handle the biggest financial decision of their lives.

  15. This article is obviously to help support realtors. I get it. You are a soon to be dying occupation ( or at least greatly changed), due to the use of the internet. You should be working to change the laws to allow you to avoid having to work for a broker in the early years. They should be the first to go away.. This is not the 80s or 90s. The reality is that after the realtor makes the sell in the living room and gets the listing, a lock box is put on the door and an automated service is set up to schedule showings ( by a separate realtor who is meeting people at the home to walk around with them). You guys do nothing else. —– I understand that pictures are taken and listed. Your phone can do that today. Again, not the 80s or 90s. Change soon. Blockbuster did not.

    • Hi Murray, the internet has changed being in real estate a lot already. There are many agents that offer lower commissions and many services that let sellers sell their house online. You are still talking about the biggest investment most people will ever make. If they screw something up not knowing what they are doing ti will cost them much more than they save not using an agent or using an agent that doesn’t know what they are doing. You aren’t paying for the hourly time an agent spends, but the experience, knowledge and training.

  16. Well we’re trying to sell out house and we are selling it for 120,000 out of which we get 20,000 and he gets pretty much the rest of it…so how is that fair? We are the ones who have lived here for 12 years and now we can’t even afford another house, we can hardly afford a trailer. You’re bias because you a realtor, you’re all just rip offs who steal money.

    • Hi Sarah, there is no law that says you have to use an agent. You can try to sell the house yourself. There are many agents who charge different amounts. You usually get the level of service you pay for. It is a free market and you can try a limited service company, but you will have to do much more work yourself. The reason most people use agents is they do not want to figure out a very complicated process themselves and as I wrote in the article a seller will usually make more money using an agent than they would trying to sell it themselves. There is value in using an agent but you Dont have to use one if you want to try it on your own.

  17. Hi Mark,
    I think your math is off, 6% on $200,000 is $12,000, which provides for $6,000 to each side (buyers agent and sellers agent). Both sides do not split $6000.

    In CA, sellers are required to provide 236 disclosures to a buyer, that is the minimum. One can certainly have an attorney handle paperwork for their FSBO, but hopefully they are using a Real Estate attorney who knows all that is needed and then guess what? A specialty attorney’s price just went up. Is that attorney licensed and insured should an issue come up after the close of escrow? I hope so, or Mr. FSBO may lose everything they have in a lawsuit. People need to realize that Realtors make they money they do, and work with brokers to ensure that all the legal requirements to exchange real property are met per the letter of the law to protect both (all) parties. Most sellers understand that they pay the commissions, but they will then not have to pay when they purchase again (or when they purchased the first time).

    Until someone does our job, they will not fully understand all the work that goes into representing sellers and buyers. Sure, we occasionally have a listing that sells quickly, but what about every other listing that requires, ads, keeping online marketing current, signs (up then down), open houses, marketing materials, and of course, association dues, licenses, and continuing education. The only people who don’t do this job but understand, are our families.

    • Hi Kathy, I think I meant to say each side makes $6,000, but it was not very clear. Thank you for the rest of your comment! Very informative.

  18. You can tell this article was written by a realtor. I have bought and sold homes without a realtor and it was fast and easy. As long as you get a professional appraiser and hire a lawyer for the paper work it’s not a hard process. Yes hiring a lawyer is 1000’s of dollars cheaper then a real estate agent. It should not matter to the buyer how the money spent is divided but the amount is outrages. Most realtors charge a 6% commission. If you have a low end market typical home selling between 200K and 300K that means you are paying $12,000 to $18,000. That’s real money coming out of your pocket.

    • Hi Dean, It can be fast and easy to buy and sell houses without a realtor, but how much money are you leaving on the table? Appraisers are notorious for pricing properties low to cover their themselves since all the fraud a few years ago. The average price for a FSBO sale was over 20% less than one sold by an agent. THat is a lot more than the 6 % commissions some agents charge.

      • What’s the source for “The average price for a FSBO sale was over 20% less than one sold by an agent. “?

        It’s hard to imagine that someone would list houses at 20% lower than other similar houses nearby when all that information is available online and in the local government.

        Agents should not be paid 6 or even 3% of a sale. That’s ridiculous and further fueling an excessive saturation of real estate licensees. The saturation results in few sales per licensee, resulting in requiring higher compensation per sale. This needs to be regulated.

        • NAR (national association of Realtors) They don’t always list them that much lower, but they end up selling for less. What is your basis that 3 percent is too high? The agent rarely gets all that and many times they get half that. What if they are selling $50,000 houses? Getting paid $750 is too much when they have to split the commission with their broker? All commissions are negotiable. You are welcome to negotiate a commission with an agent. You usually get what you pay for.

  19. This is a good article, but I still have a hard time with this… why does the broker make so much then? What is the broker doing to earn half of the real estate agent’s commission? Are the brokers over-paid? Also I am having a hard time justifying that my real estate agent makes 5x more to sell my $500,000 house than to sell my friend’s $100,000 house. Didn’t they do the exact same job? Yes, there are more potential buyers at the $100,000 price-point, but does selling a really nice $500,000 house make my real estate agent’s job any more difficult? Why is he paid 5x more to do the same job, especially when it is the buyers that “look” for the house, so whatever offers come are going to come regardless of any effort put up by my real estate agent to sell my more expensive house. Advertising is advertising, right? So why should advertising a $500,000 house cost any more or be any more work than to do the same thing with a $100,000 house?

    • Hi Rob, The broker does many things and commission splits vary from 50/50 to 95/5 to a flat fee. The more training and support the more the broker makes. The broker often provides an office, staff, advertising and other perks as well.

      As far as the fees on a $500k versus $100k house there is usually more effort put into a more expensive listings. More advertising, sometimes a professional photographer is hired, a custom sign. It is usually more important that a home is staged well, shows well and looks perfect to sell in the higher price ranges. More expensive homes take longer to sell and there are fewer of them. Commissions are also all negotiable so you can try talking down agents since you have a more expensive home.

      Pricing is extremely important and it gets harder the more expensive a house is. If you under or over price you will usually cost yourself more than the agent charges.

    • Really want them gone. So sorry. Last agent way too familiar. Surely if I walk in I know exactly what I want. She asked how old we were, when the children were leaving home and then said oh so you want to scale down. NO, we wanted to scale up you ninny. Children get married and the family gets bigger one day. I became so rude (not in my nature) and my husband was sighing. I tell them DON’t take me to a house with red laminated kitchen in a rectangle and dark. I want a kitchen with a house added onto it. They never ever listened. None of them did. In the end, thank goodness we got a thing called Selling by Owner and we bought that property. And it had a KITCHEN, modern and light with everything. WHY do builders take up so much space for bathrooms when it’s kitchens that sell the property. Then we heard what they earned on a prop. Why do their percentages go up with inflation. Percentage doesn’t fall under inflation it stays relative. We saw it go from 3% to 12% on a property. The agents did my mind in.

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