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6 Ways Real Estate Agents Are Paid

: Richard Montgomery on

Dear Monty: I am a middle-aged male who was recently laid off from a position. I have 20 years of experience in financial services with a large bank. I am looking for other opportunities, and real estate sales are on my list. I know there are different ways agents are paid, but I have no specifics. How are real estate agents paid?

Monty's Answer: Real estate agents are compensated through various methods, with commission-based structures being the most common. Legacy brokerages currently garner a very high percentage of the commission volume, so rookies typically start at the low end of a graduated commission schedule. These arrangements can vary widely, reflecting the fierce competitiveness in retaining or gaining market share. Here are the six basic methods:

No. 1: The 6% model. This typically involves a percentage of the property's sale price, usually from 5% to 6%. The broker's commission is split between the company, the listing agent and the selling agent. For instance, on a $300,000 home sale with a 6% commission, the total commission would be $18,000, divided between the two agents' brokerages. The split between brokers generally favors the listing company, as listings are often seen as the more critical aspect. A 60/40 or 65/35 split is not uncommon. Some of the 600 multiple listing services use a 50/50 split.

No. 2: The accelerated production-based model. As agents increase their sales volume, their commission split with the brokerage improves. For instance, an agent might start with a 50/50 split with the brokerage, but after reaching $5 million in sales, their split could increase to 60/40, and at $10 million, it might become 70/30. This twist incentivizes high performance and can significantly boost an agent's income if they become more successful.

No. 3: Flat-fee services. A brokerage might charge a set amount, say $5,000 or $10,000, regardless of the final sale price. This method can attract sellers who want more control or high-value properties who might otherwise pay substantially more under a percentage-based commission.

No. 4: Discount brokerages. These companies are primarily online offerings, and they include for-sale-by-owner models. Discount brokerages offer reduced commission rates, often around 1% to 2%, in exchange for MLS access but limited services. Sellers handle more of the sale process themselves but benefit from lower costs.

No. 5: Fee-for-service. This type may become more common, especially for sellers who want to handle all or parts of the sale process themselves. Brokers charge flat fees plus extra charges for home staging, photography or negotiation assistance.

 

No. 6: Exclusive buyer agent companies. These companies do not accept listings. They believe the internal conflicts of interest among agents in other types of companies is untenable. This model has few adherents but may grow with the recent class action decisions. Their expertise and guidance is to protect the buyer throughout the buying process.

If you decide to move forward in real estate, check out "5 'pick a broker' tips for new agents" on the Dear Monty website.

The compensation landscape for real estate agents is diverse and evolving. The industry is fragmented, from traditional percentage-based commissions to innovative graduated schedules, accelerated production-based models and alternative methods. The internally focused leadership is being forced to change by lawsuits and federal government intervention.

Richard Montgomery is a syndicated columnist, published author, retired real estate executive, serial entrepreneur and the founder of DearMonty.com and PropBox, Inc. He provides consumers with options to real estate issues. Follow him on Twitter (X) @dearmonty or DearMonty.com.

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Copyright 2024 Creators Syndicate, Inc.


 

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