Typically, the general public does not understand how a REALTOR® gets paid. Most REALTORS® are paid by commission only and do not receive a salary or hourly pay. In addition, most real estate agencies are only paid a commission when a property is sold. The real estate industry is one of the only industries that provide numerous services and assistance to clients with no upfront cost or reoccurring fees for their services. There are a few real estate agencies which provide limited services and charge an upfront or flat fee for their services but the majority of real estate agencies do not earn any commissions unless a property is sold during the contract period. In a typical real estate transaction, commissions are split equally between the listing side and the buying side. I will go into more detail below describing the differences between the listing commission and selling commission.
Listing Side of Commission:
The listing side of the commission is paid to the listing agency once a listing is sold based upon the listing contract that is signed when the property is listed for sale. If the listed property does not sell during the listing contract period, than the agency does not earn a commission. The listing agency is responsible for marketing the property and paying all fees associated with marketing the property which include; taking photographs, developing marketing materials, paying support staff, paying for online advertising, paying for print advertising and an array of other expenses needed to operate a real estate agency. The listing agency must pay for all of these fees regardless if the property sells. The property owner is not responsible for paying any of these fees and is only required to pay the commission once the property sells. The listing agency collects the listing commission when the property is sold and after closing takes place.
Selling Side of Commission:
The selling side of the commission is paid to the agency working with a Buyer whom purchases a property. Occasionally, the same agency will work with both the Buyer and Seller and can collect both the listing and selling commission. Most REALTORS® working with Buyers will show them multiple properties over an extended period of time and will provide market data along with other resources to assist the Buyer in making an informed decision about Buying a property that suites their needs. REALTORS® representing Buyers will typically spend a lot of time and effort in locating a suitable property for Buyer by utilizing numerous tools and services. Again, the Selling commission is only earned if the Buyer purchases a property while assisted by the REALTOR® and the commission is collected after closing.
REALTORS® provide numerous free services in exchange for the hope of collecting a commission once a property sells. Buying and Selling real estate is usually the biggest investment people make in their lifetime and the services of an experienced REALTOR® are invaluable!