How Real Estate Agents Get Paid?

Are you curious about the payment methods for real estate agents? In this article, we will explore the various ways real estate agents receive their compensation and the factors that determine their earnings.

Uncommon Methods of Compensation for Real Estate Agents

While most real estate agents in the United States receive commission-based compensation, there are some companies that pay agents on an hourly basis. These companies typically specialize in rental properties and have a larger incentive to pay agents by the hour due to the nature of their work, which involves showing available rental units to prospective tenants. These agents usually work directly for a property management company.

There are also real estate companies that pay agents on an hourly basis for tasks such as leasing and appointments. Although uncommon, these companies are exploring different business models to serve their clients. However, one potential downside of paying agents on an hourly basis is that they may not have a strong motivation to gain a deeper understanding of the various real estate markets in their area. As long as they receive their hourly wage, regardless of whether they sell or list a property, their drive to exceed expectations may not be as strong as that of commission-based agents.

Some real estate agents receive both an hourly wage and commission for assisting clients in buying or selling properties. Although not as common, this type of compensation structure can be extended to management positions within a real estate brokerage where there may not always be enough time to solely focus on assisting clients in transactions. Additionally, real estate agents who perform administrative tasks such as preparing property documents, tracking progress, answering phone calls, and being available at the office during working hours may also receive an hourly wage while also earning commission through assisting clients in real estate transactions.

Commission-Based Compensation for Real Estate Agents

The majority of real estate agents in the US are compensated solely based on a commission structure. This means that they do not receive an hourly wage from their brokerage until they help a client purchase or sell a property. These agents do not receive a salary from their real estate company, although some agents may take on other jobs to make some income during periods of slow sales. Similar to any sales-based job, real estate agents rely on the belief that their clients will continue working with them throughout the entire process until the transaction is completed. Although agents cannot control whether clients choose to work with another agent or handle the transaction independently (unless there is an existing written agreement such as a buyer's representation agreement or a listing agreement), if a client decides to engage another agent or proceed independently, the agent may not receive compensation. It is essential for clients to communicate their intentions clearly with their real estate agent.

For buyer's agents, they are typically protected by a buyer's agency agreement that specifies the period of time the seller must hold their home off the market for the buyer's agent. However, not all buyer's agents use a buyer's agency agreement to commit to their clients and vice versa. Potential buyers might randomly request an agent to show a property without a designated agent or when their agent is not available and not be concerned about whether the agent is being paid for the showing or unaware of it.

Homebuyers should interview multiple agents and build a relationship with an agent who will represent their best interests. By having a strong relationship with an agent, a buyer's chances of success will be much higher. Requesting an agent to work for free by not sticking with one agent when viewing properties can harm a buyer's chances and potentially create legal issues that the client may face.

The Actual Amount Received by Real Estate Agents

A common misconception among the general public is that real estate agents are overpaid for minimal effort. Firstly, there are no fixed commission rates or fees, and all commissions are negotiable. If an agent does not demonstrate value commensurate with the amount they are charging, the client has the right to request a lower commission or find another agent who will agree to a lower fee. The amount of work that real estate agents undertake during a transaction is valuable due to the alleviation of the burden of ensuring compliance with all timelines and keeping things on track with the transaction.

The commission received by real estate agents is not the amount they keep after signing a contract. Agents are responsible for paying MLS fees, real estate board dues, licensing fees, ongoing education fees, brokerage percentages, taxes, retirement savings, health insurance premiums, and more. Therefore, although the commission amount may seem substantial, most of it is used to cover various expenses and obligations. In many cases, fifty percent or more of the commission paid to the agent is allocated towards the aforementioned expenses.

Listing agents (agents who help homeowners list their homes for sale) often pay upfront for professional photography, staging consultations, marketing fees, and more, relying on the commission payment upon closing to recoup those costs. Buyer's agents are responsible for paying for gas, vehicle maintenance, MLS fees that allow them access to listing information so they can ensure they are able to show their clients the homes they want to see. Real estate agents perform a considerable amount of work for their clients, and the hourly wage they receive is not significantly higher than other professions.

Conclusion

While the majority of real estate agents are compensated solely by commission, some agents work on an hourly basis or a combination of hourly wage and commission. Buyers and sellers should work with agents who will represent their best interests, and building a strong relationship with an agent will greatly increase a buyer's chances of success. Requesting an agent to work for free by not sticking with one agent when viewing properties can harm a buyer's chances and potentially create legal issues that the client may face.

Illustration: Caption: Illustration of some real estate agents receiving an hourly wage.

Caption: Expenses and taxes that real estate agents have to pay.

Caption: Ultimately, real estate agents are paid based on commission.

About the Author: This article was provided by luxury real estate expert Paul Sian. Paul can be contacted via email at [email protected] or by phone at 513-560-8002. If you are considering selling or buying investment or commercial real estate, I am happy to share my knowledge and expertise in marketing to assist you. Contact me today!

I work in the Greater Cincinnati, OH and Northern KY areas including Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, Indian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.