when do real estate agents get paid their commission

When Do Real Estate Agents get Paid Their Commission?

In Real Estate by Jamie P.

One of the hottest topics in the real estate industry is commission. Since agents don’t charge per hour and can sometimes spend hundreds of hours with an individual client, a good real estate agent will earn every penny of his or her commission.

So when do real estate agents get paid their commission?

Real estate agents receive their commission once the deal is officially done, all conditions are met, and the closing date has been reached. After the closing date, the agent’s broker will then release its share of the commission payment to the agent.

In an ideal scenario with little or no delays, a real estate agent can seal a deal in 20 working hours or fewer, but unfortunately, it’s common for an agent to spend several months helping a seller find the right buyer and come to an agreement. The good news?—the process should get easier and more enjoyable with time and practice.

How Do Real Estate Agents Get Paid?

When someone buys a home, part of the cost includes a fee that is paid for the services rendered to the buyer and seller. This fee is typically paid directly to the realtor’s brokerage firm.

Most often, real estate agents get paid on commission, meaning real estate agents get paid only after they close a deal. This motivates the right real estate agent to work quickly and efficiently. Commissions are based on a percentage of the sale of the property, and a common commission percentage today for a house is anywhere from 4-6%, though this percentage can vary based on location.

And—little known fact—the commission percentage can be negotiated.

It is sometimes assumed that the seller’s real estate agent will make the full $6,000, but that is typically not the case. On a $100,000 home, for example, a 6% commission would be $6,000. But that $6,000 probably won’t go entirely to the real estate agent. Instead, it will be divided among the following:

  • the listing agent
  • the listing broker
  • the buyer’s agent
  • the buyer’s broker

Bottom line: Real estate agents work long and hard for their cut of the 6%.

Sometimes seasoned real estate agents avoid splitting the commission with their broker by paying “desk rent,” but that’s an entirely different scenario that requires the agent to do a higher-than-usual volume of sales.

Who Pays the Real Estate Commission?

The commission comes out of the sale’s proceeds before the seller receives any payment for the sale of the property.

And while the real estate commission is technically paid out by the seller, the funds used to pay the commission most often come from the money paid by the buyer. So the buyer is responsible to pay the real estate commission.

It’s actually a common practice to include the realtor’s commission fee in the initial listing price, though the fee can be a bargaining chip in the sale of a property. Sometimes a buyer and seller will negotiate the way the commission will be paid. A seller could agree to pay part of the closing costs as a counter-offer, for example.

When Do They Receive the Commission? (and what needs to be completed?)

As soon as the close of the sale and funding is complete, commissions are released to the realtor. Direct deposit usually means the commission can be immediately paid, but it can take time depending on any additional hurdles.

Here’s a simple roadmap to receiving a commission:

  • Closing occurs. All official documents are signed. The buyer’s funding goes through.
  • Bank disperses funding. The sale is officially done. The commission is taken out of the proceeds of the sale.
  • The escrow company sends the commission to the brokerage.
  • The brokerage receives the commission and makes a deposit. The brokerage then splits the commission and submits a direct deposit into the realtor’s account.
  • The realtor receives the commission.

Do Real Estate Agents Get Paid if the House Doesn’t Sell

Generally speaking, the real estate agent only gets paid if and when he or she sells the house. So if the realtor doesn’t sell the house, unfortunately, the real estate agent does not get paid.

That said, one exception to this rule is if the real estate agent and the seller sign an exclusivity contract for an established amount of time. When this happens, the seller is obligated by contract to pay the real estate agent the commission fee no matter how the house is sold during the established amount of time. So if a neighbor or friend were to make an offer on the house in the established timeframe without involving the real estate agent, the agent would still receive the commission.

But that said, most often the real estate agent must sell the house in order to get paid.

Final Thoughts

People often pursue real estate licensure because of the amount of money they can make in the real estate market. And it’s true—the real estate industry is filled to the brim with exciting potential! But it does take time, effort, and determination to learn the ropes and get paid a commission. With a little luck and elbow grease, the sky is truly the limit.

About the Author

Jamie P.