How Do Realtors Get Paid?

Posted on July 23, 2008 | by Denny Oh

Like most people, before I got into real estate, I had no clue how Realtors made a living.  Sure, they sell homes, but how do they actually make money?  The answer to that, these days especially, is that we work hard.

Residential real estate agents only get paid when they sell a house.  Not when we list a house and not when we show you property “ only when we close a deal and a home exchanges buyers hands.  We are independent contractors and are not considered to be employees.  This means that we get no medical benefits, nor do we get our employer to match our 401Ks.  We, Realtors, essentially run our own businesses and are responsible for our own survival.  There are no salaries, no expense accounts and no bonuses.  We only get paid when we close a deal “ 100% commission.

To break it down further, most brokerages work one of two ways:

Option 1 “ Agents pay the company a desk fee, which is like rent.  Agents pay an annual fee to be a part of that brokerage and use their office space.  These arrangements typically yield a higher commission split between the agent and the broker, but the agent pays his or her rent no matter what.

Option 2 “ Agents do not pay a desk fee, but give a higher percentage of their commissions to the broker.  In other words, you dont have to pay for your desk, but you do give the office a portion of your money each and every time you sell something.

Obviously, it depends on how much business each agent does and what their split is, to determine which option is more beneficial to that particular agent.  However, aside from commissions, there are other factors as to why an agent may work for a specific brokerage.  I for one, chose to work for Prudential California Realty, because we are by far the largest real estate company in San Diego.  Prudential has an great reputation and a great team of leaders running the company.

With that said, not every agent within Prudential is the same.  Like any service industry, you should do your homework and work with someone who knows what theyre doing and someone you like.

If you have any other questions, or know of someone who might need some help, feel free to contact me.

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2 Comments

  1. Lynette says:

    I made an offer on a house I really wasn’t sure of, but my realtor “talked me into”. I know that’s weakness on my part, but that part is over now. I’ve told the realtor at least 4 times that I don’t want the house. Each time he said it’s too late, I can’t get out of it. I realize I would lose my ernest money, appraisal money, inspection money, etc., but that’s OK. I have finally said “No Way” on the house for multiple personal reasons. I have no copies of contracts with the realtor, the only one I remember signing is the one saying he was waiving a $595 administration fee. Now, he wants to charge me $4200 for all his “hard work” in finding me a house. As with most house shopping these days, he set up criteria for me on the MLS and I got auto emails and told him what I’d like to go see. He has provided no itemized billing of the $4200, not any contract signed by me saying I’d pay him any amount if I backed out or didn’t back out. I fully understand all the other costs (ernest, appraisal, inspection, credit report, etc), but is this $4200 fee legit? (By the way it was a $109,000 foreclosure house). I realize that you are in CA and I am in WI and laws are different, but your website was the only one close to the info I was looking for…”We only get paid when we close a deal…”

  2. Denny Oh says:

    Lynette,

    I’m not an attorney, nor have I practiced RE outside of San Diego, but this sounds terribly wrong to me. In my experience, realtors do not get paid unless they close a deal. I would expect my clients to reimburse me for any inspections/services I paid for, but this would be agreed upon before I paid for them.

    I have never asked a client to pay me for my time, work or anything else. I also pay for my clients’ “administration fee,” but those fees are only paid when a deal closes. I’d talk to your agent and ask them what’s going on and if that doesn’t work, talk to their office manager. If that still doesn’t help, call an attorney!

    It’s money hungry agents like this who give realtors a bad rap. I’m sorry you have to go through this!

    ps – $4200 on a $109K purchase price?! Was the bank even offering that much to begin with?