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How A Realtor Gets Paid

So you’ve decided to sell your house. Generally, when people go to sell a house, the first thing that comes to mind is hiring a Realtor. Have you ever wondered how a Realtor gets paid? Who pays the Realtor and what they actually do for that paycheck? And how much does a Realtor actually make?

In this post I’m going to explain who pays the realtor, how a realtor gets paid and what they do for that money.

Mostly I write, and speak on my youtube channel, about For sale By Owners. The purpose is to give you tips and strategies to help you make more money and sell your house fast. I teach how to sell your house yourself. In this post I’m going to do something a little different. I’m going to give you some information that will help you make decisions. Decisions like, do I want to sell my house myself or do I want to hire a real estate agent to do it and pay them?

So I’ll get right to the point.

It’s The Seller That Pays The Realtors

It’s actually the seller that pays for all the Realtors. The seller pays for both Realtors. That’s right. They pay for the agent that list his house. And they also pay for the buyer’s agent, the person who’s buying his house. So essentially the seller is paying for the person that’s going to sell their house for them and they’re also paying for the real estate agent that’s going to be negotiating against them.

Now, you might not think that makes a lot of sense, and you’d be right. It really doesn’t. We’re going to go over how that came about and why it is the way that it is.

Look At It Like This.

Look at it like you’re going to court for some reason. Let’s say Somebody is suing you or you’re suing somebody for divorce, car accident, business deal gone wrong, whatever. When you go to court, you hire an attorney to represent you and your adversary, whether it be someone suing you, the state or whatever, they have their own attorney, an attorney that represents them.

Or maybe your involved in a business deal like a buyout or something. In that case, again, each side has it’s own attorneys representing them and their best interests.

And so you go to court, or you sit around a table, and you fight it out and the two parties with their separate representation come to an agreement or the judge after listening to both sides issues a judgment. It’s just like that in real estate only the seller pays for all of the representation. The seller pays for all the Realtors.

How It Was

Now, it used to be back in the day before the Internet real estate was a lot different. Everybody worked for the seller and that was normal. One brokerage listed the house in the big books and another agent from another brokerage could find a buyer for the seller. That’s how it was thought of. Find a buyer for the house, not find a house for the buyer as we think of it today with the new “representation” model of real estate. It was all the agents job to get the house sold and get paid.

When a seller wanted market a house, to list a house, you basically had to have a broker because instead of the Internet the broker had these big, thick books and in those books they put all the houses that were for sale.

If you wanted to buy a house, you got a hold of a brokerage and you went and you sat down and you looked through those books looking for houses that you wanted to view. Then an agent would take you around and look at those houses until you picked one. The real estate industry held all the information. Agents could pick and choose what they wanted to show you.

It was in everybody’s best interest to get that house sold for the seller. Nobody was really working for the buyer. Not directly. It was Normal for the person selling the House to pay the Realtor

How It Is

Nowadays with the internet it’s a lot different because buyers can go online, they can find out all the information that they need to be fully informed. Buyer’s can see all the homes that are for sale, they can find out when the home was last sold, find out how much the home is selling for and how much it sold for the last time it sold. All that information that used to be held close by the real estate industry is now available to the public. Free of charge.

How It Works For Realtors Now

So the real estate industry did a big shift. Instead of just marketing and selling your house for you, they invented a different model and they call it representation. Now the seller and buyer both have representation. Exclusive representation in fact. Brokers and their agents will still market and sell your house for you but the marketing has become, oh, how can put it, easy. Really easy. So easy in fact a home seller can easily do it themselves so hence the change in an attempt to remain relevant.

Now the person selling the House, they have representation. The Realtor or brokerage that is listing their house for them. And the person that’s buying the House, they have representation. Both parties each haver their own Realtor that represent them but the seller pays for both.

They even use words like fiduciary. How that works is you actually sign an agreement that says that you’re an exclusive listing agency or you’re an exclusive buyer’s agency and you have a fiduciary duty to your client.

When you’re a buyer’s agent and you have a buyer, you negotiate for that buyer and you do everything you can to get a better deal for that buyer. You’re actually negotiating against that seller’s agent . And the seller is paying that buyers agent.

What Real Estate Agents Do For You

So let’s go over a little bit about what each agent does. What those Realtors do for their pay.

Listing Agent

You hire a listing agent to sell your house for you. They come over meet with you. It generally takes about 45 minutes to an hour. The listing agent will go around your house and they show you what you need to do to get your house ready for market. They might go over some staging tips with you. It’s possible the agent might go over some cleaning tips with you, some ways to keep your house ready to show. They might suggest you take the pictures down off the wall. There’s a whole list of things that are helpful to do when you’re trying to sell your house to make a better presentation.

They’ll also help you price your house and they’ll do that by doing a comparative market analysis or a CMA, which means that they’ll pull comps from the area, houses that are similar to yours that have sold in the last six months. Then they’ll use those comps to help you to come up with a price for your house.

Agents will take care of pictures and writing descriptions.

A listing agent will take care of all the transactional details for you. Once you get an offer, they’ll take care of all the paperwork for you, which ironically, when you hire a real estate broker there’s a ton more paperwork a lot of which is to protect agents and brokerages. But they’ll take care of all that paperwork for you. There are contracts, state specific disclosures, sellers disclosures ect. ect, ect. .Just a lot of paperwork.

The agent will help you through the inspection process, the appraisal process and everything else associated with that real estate transaction all the way to the closing table.

And then they’ll go to closing and then the realtors get paid.

Buyers Agent

A buyer’s agent’s job is to help a buyer find a house. They have other duties to perform once they find that house but his main objective at first is to help that buyer find a house.

Once a house is found the agent will help the buyer to formulate an offer and negotiate a contract. Like a listing agent they will help the buyer with the appraisal and inspection process and all the transactional details and paperwork to get to the closing table.

According to the National Association of Realtors, 52 percent of buyers find their home themselves, the one they end up buying, on the Internet. According to that same source, 90 percent of buyers start their home search on the Internet. (Personally I think the number of buyers that find their house themselves is a lot higher. If I’m right and it is it doesn’t reflect well on the real estate industry. More and more tasks involved in a real estate transaction are being preformed by the buyer and seller making less need work for the agent.)

How A Realtor Stays Relevant

What that means is that most people don’t actually go out and look for a buyer’s agent to buy a house. They go directly to the Internet. Unless that buyer’s agent is referred by a family member or a friend most agents get hooked up with buyers through these Internet sites like Zillow and Trulia, realtor.com and and such.

A buyer will go directly to the Internet, to a site like Zillow to look at homes for sale. When they find homes they are interested in they click and can look at pictures, statistics, descriptions and find out everything they need to know about the house. If a potential home buyer wants even more “information” there is a button that can be clicked that puts you in contact with the “agent” This is where it’s gets tricky..

Most consumers think they’re contacting the listing agent, the person selling the house, but actually what you’re doing is you’re contacting an agent that pays to be on Zillow or such similar real estate portals. You put in your phone number and you click contact agent. One of these agents that the real estate site has sold your information to will contact you, not specifically to give you information, but to make you a client.

That agent will call you and then they’ll set up a showing for you and while they have you, they’ll try to get you to sign a buyer agency agreement. What that agreement does is it ties you to that agent. It says that if you buy a house, that agent is going to get paid one way or another. If the seller doesn’t pay them then you will have to. That’s a bad deal for FSBO’s or buyers looking at homes for sale by owner.

How The Seller Pays

When a home seller has a listing agreement with a brokerage the contract reads the seller has agreed to pay the broker. That fee is usually a percentage of the contract price and while it’s not legal to set fees it’s normally around 6%. Then that listing brokerage is going to split that fee with the buyer’s brokerage. And that is how the seller ends up paying for both Realtors.

For Sale By Owner

But what happens if that buyer finds a for sale by owner? Then that buyers agent will call that for sale by owner, schedule a showing, talk to that owner and try to get them to pay the Realtor. Which that for sale by owner probably doesn’t want to do because that’s why they’re doing a for sale by owner.

You see how that works? Because now if the for sale by owner doesn’t want to pay the realtor, then the buyer is stuck with that whether they need that agent or not. And it ain’t cheap. Again, it’s the agency agreement that determines the buyer will pay if the seller doesn’t.

So that’s why real estate agents will sometimes shy away from for sale by owners and try and keep the buyers away too.

Avoiding Real Estate Commissions

The trick is to make sure that your house is dazzling, make sure it’s stunning so those buyers just cannot resist. When you get them into your house, talk directly with the buyers. The agent will try to commandeer the conversation. Don’t let that happen.

Of course the best scenario is to get the buyer to call you directly bypassing any agent. You can do this up front in the description you write for the internet real estate sites like Zillow.com where you’ll market your home. Ask people to contact you directly for the best deal. If they have an agent and a signed agency you can raise the price to cover that expense if need be and there is no law that says you can not negotiate that agents commission. Find a way to make sure the buyer is included in all the negotiations. That the buyer knows all along the way what is happening. Often agents keep their buyers in the dark if it’s not favorable to them.

Protect Yourself As A FSBO

Pro tip: If you do raise the price to cover the agents commission write in the contract that the buyer agrees to make up the difference in cash between contract price and appraised value if any because of the Realtor pay. Make the buyer understand the price went up to pay their agent.

Finally

That is how the seller ends up paying for all the Realtor representation. It hardly seems fair but as my broker once told me, “if buyers had to pay for a real estate agent there would be no real estate agents.”

Go figure…

Joel

How Much Money Does A Realtor Make

by Joel Weihe

Have you ever wondered how much money does a Realtor make?

According to the Bureau of Labor Statistics, the latest data from May of 2019, the average real estate agent makes $45,990. According to some more recent data from salary.com, the average agent makes $42,183. Notice that’s a little bit lower.

In this video I discuss how much money a Realtor makes, the realities of that and how much long it actually takes to start making money. And why it still costs so much to hire a real estate agent.

Anyone you know who is planning on selling a house now or any time soon, subscribe to this channel because I’m going to show you how you can save, or make, if you will, thousands of dollars by selling your house yourself.

Hi, my name is Joel Weihe. I’ve been making money selling real estate since 2009.

The Money A Realtor Makes

handing over cash for house in front of beautiful new home.

The real estate business is kind of like most other businesses in that it uses the 20/80 rule. 20 percent of the agents make 80 percent of the money. Top producers make an average of $112,000 a year. Then you’ve got your mega agents that can make a half a million or more. Some agents that work with the super-rich. They can make millions of dollars a year. In this article we’re just talking about the average agent with the average price house in the average market in the average America.

There are plenty of real estate agents out there that make a good living, 40 or 50 grand a year, which is average. The money a Realtor makes varies widely. 10% make less than $23,000 and 10% make more than $110,000

There are also a lot of agents that wash out. In fact, according to the National Association of Realtors, 80% of real estate agents wash out within the first five years. And there’s other data that says that 80% only last two years. Agents cycle in and they cycle out.

Agents

Right now, at the beginning of 2021, we have a glut of agents. It makes the salaries go down a bit. Plus, the market is so low on inventory. There are a lot more agents and a lot less houses to sell. That mostly means that more agents wash out or the lower agents make less money. Simple supply and demand.

Most of the top producers and the agents that have been around for a while are going to keep their salary about the same. Of those agents that wash out, you get agents that come in and they sell maybe one to three homes in the first couple of years. It’s just not enough money for them to make it. There are also a lot of bills and expenses, sometimes agents even end up in the hole.

There are what are called DNA agents. Those are agents that come in, get their license and they sell to their family and friends until those family and friends run out. Once the easy money is gone, their gone.

We also have part time agents. Some part time agents do really, really well. They have a full time job and a side hustle selling real estate.

It’s not easy money. The beginnings of a real estate career can be difficult. For those that hang in and survive the first few years it can be very rewarding.

My Career So Far

My first year in real estate, I made $12,000. I literally had to borrow money to make ends meet. After my second or third year, I started making a little more money, enough to get by and start paying back that money that I borrowed. By my sixth or seventh year I was making in the lower six figures and that was nice. That was pretty cool. I was getting to travel. I was getting to save some money and do some other things that I wanted to do.

As time rolled on I didn’t really start selling more real estate. I just started working less hours. Now I work between 20 and 25 hours a week and I still make in the low six figures. That’s what I want, more time. Someone else may want more money, and that’s very possible too.

Agent Expenses

To sell a house cost between five and seven percent of the contract price. And out of that five to seven percent, the agent has to pay his broker. That’s generally in the area of around 30 percent. If that broker belongs to or owns a franchise like Keller Williams or Berkshire Hathaway or something like that, they take their cut too.

And then there’s dues. Real estate agents pay dues on the local level, the state level and the national level. There’s expenses like gas and websites and maybe office space. Some brokers charge you when you print and they charge you for all the little extras that may be used.

Another big expense these days are so called entrepreneurs using the Internet to steal business that would otherwise go directly to agents. These “entrepreneurs” start a company, go online and they advertise for to consumers looking for realtors. It works like, if you need a realtor click here, you click on that button and then they sell your information to a real estate agent. A real estate agent pays for those leads, is what we call them. That can get costly.

Most new agents must buy those leads to survive. After you’ve been a real estate awhile you develop a database from all your past clients and you try to work mostly on referrals. But those early years can get expensive. Sometimes real estate agents actually end up in the hole. Those are the ones that are more likely to wash out.

Realtors Are Expensive

That’s why it still costs you so much money to sell a house. I mean, even with the advent of internet sites like Zillow, Realtor.com and all these websites that make real estate so much easier these days. Despite the money a realtor makes the buyer is actually doing a lot of the work by finding houses on their own on Zillow and sites like that. Still, that five to seven percent commission is cut up into many smaller pieces keeping prices high to satisfy all that greed. That pie now has a lot more pieces than it used to.

Some agents are barely making any money at all. And on top of that, you have real estate teams, which is a new phenomenon. That’s an agent, not a broker, just an agent that has less experienced agents working underneath them. They also take a cut of those agents pay and plus they take credit for all the homes that those agents sell.

On average a real estate agent can make about 50 grand a year, the ones that have been around for a while. Agents can work their way up to six figures, but it’s still going to take time.

Whatever a Realtor does make it comes out of your pocket. To avoid that expense considering selling your house yourself. You’ll save thousands of dollars and be happy you did.

I’ll show you how

Watch the video, like it and subscribe to this channel.

Ibuyers vs Realtors

by Joel Weihe

When it’s time to sell a house most people automatically think of hiring a Realtor and have never heard of Ibuyers. There are other options even though they often aren’t considered. Choosing how to sell your house comes down to how much it costs and/or convenience. Check out this video to learn which is the best option for you? To sell it fast and hassle free, hire someone to sell it for you or sell it yourself and make the most money.

The most well known and popular way to sell a house is to hire a real estate agent. Hiring an agent can be expensive, often as much as 6 or 7 percent of the contract price. For a $320,000 house that could be more than $19,000. That’s a lot of money.

The most popular up and coming real estate disruptor are the Ibuyers. Ibuyers are companies that will buy your house directly from you at a fair market value or just slightly below fair market value price. Using an Ibuyer is definitely more convenient for a faster less stressful sale but can get expensive too.

Watch the video above to learn the specific advantages, disadvantages and costs associated with Realtors and Ibuyers.

For Sale By Owner

And of course you can always sell your home yourself and make the most money by not paying anyone. Using Ibuyers or Realtors can be expensive and really cut into your profits and future plans. The reason most people never even consider a For Sale By Owner is lack of knowledge, they simply think it would be too difficult. I’m not saying it doesn’t take some time and effort. Sometimes problems will come up. Buyers can be demanding. But when it’s all said and done the savings, the money you get to keep, makes it all worth it.

Sell your house yourself! Click here to learn how.

How Does A Realtor Get Paid?

by Joel Weihe

If you’re thinking about buying or selling a house you may wonder how does a Realtor get paid? The Realtor gets paid by the seller, in fact both real estate agents, the buyers agent and the listing agent, get paid by the seller.

A Realtor thanking the home seller for payment after selling theor home. — Paying the realtor

This post isn’t so much about how to sell your house yourself, but is intended to give you an understanding about how the real estate industry works, and why. With that information, it will be easier to make wise decisions. Decisions like should I hire a real estate agent or should I sell my house myself and save the commission?

How It Was

It used to be that all agents represented the seller. Before the internet the only way to get information about homes for sale like the details, last sold date and price you had to use a real estate broker. In that time all agents worked for sellers.

Back then it was very difficult, if not impossible, to sell a house without a real estate broker. A real estate agent works for a real estate broker. A real estate broker is a person or company that Brokers a real estate transaction or a real estate deal. Just like a stock broker brokers the sale of a stock. The middleman. The person that passes the money from one person, entity or company to another.

The only way to really advertise a house for sale was by using a broker. The Brokers had big books that they listed homes in. When someone wanted to buy a house they contacted a broker, sat down at the broker’s office and looked through the books for houses they wanted to view.

Of course now consumers, or potential home buyers, simply turn on a computer to browse for homes and find all the information they need for free. The National Association of Realtors, or NAR, estimates that 52% of homebuyers find their home on the internet.

How It Is, Buyer & Seller Representation

The new take on the industry since the internet, and to help keep the industry alive, is a representation model. Meaning that one agent represents the seller while the buyer has their own agent that represents them. Like if you were going to court and had a lawyer that represented you and your adversary had a lawyer to represent them.

In a courtroom each pays for their own attorney. During a real estate transaction, how does a Realtor get paid.

Both Realtors are paid for by the seller.

The seller pays the brokerage listing the house a percentage of the contract price agreed upon beforehand. The listing brokerage then pays the selling brokerage a part of those proceeds for bringing a buyer. When it’s all said and done the seller has paid for both real estate agents.

Sounds odd, and it is. You are basically paying your buyers real estate agent to negotiate against you. It’s the same if you are a For Sale By Owner and your buyer has an agent, they will ask you to pay for the agent.

An agent will tell you that’s the way it’s always been done. And believe it or not, sellers rarely question this arrangement.

In a typical transaction with 2 agents there is a listing agent and a buyers agent.

The Listing Agent

The listing agent is the Realtor that lists the house. Using the Multiple Listing service, or MLS, the agent enters all of the information about the house and the price. Internet real estate sites like Zillow.com, Trulia and Realtor.com then pick up the listing and display it on their sites.

During the initial listing appointment which lasts about an hour the agent will tour the home and give the seller suggestions how to better show it. This is actually a very important step in the home selling process, Getting the house ready for market. NAR says that 13% of home sellers have trouble getting their homes ready for market on their own.

The agent may suggest things like:

Removing all of the clutter from the home.
Take down pictures of family and friends.
Clean, clean and clean some more.
Paint where needed
Clean or replace flooring.
Fix anything broken.

Next is price. Pricing your home correctly is about the most important thing you can do when selling a house. Your listing agent will help you determine a realistic price to the make sure house sells without leaving any money on the table. Or you can do that yourself. Pricing a home for market takes a little bit of skill, some experience and having up to date data. 19% of For Sale By Owners think the most difficult task when selling a home is pricing it right according to NAR.

A listing agent will take care of all of the transactional details for you. They’ll fill out all the paperwork, which ironically takes a lot more when using a Realtor.

For a Realtor to get paid another thing they do for you is negotiate. What exactly is negotiating to a Real estate agent? Mostly agents simply pass information back and forth.

The Buyers Agent

A buyers agent works with the home buyer.

The buyers agent job is to:

Schedule viewings of homes for a buyer.
Write offers and negotiate contracts.
Assist the buyer through the inspections and appraisal process.
Take care of transactional details, (Paperwork).
Show up at closing and get paid.

A home buyer gets on a computer to look at homes for the first time on websites like Zillow or Realtor.com. Those websites will help the buyer find an agent. The agent pays the website owner for that opportunity.

A Realtor acting as a buyers agent will attempt to get a potential home buyer to sign an “agency agreement” which ties that buyer to the Realtor. The agreement says that if the seller doesn’t pay the buyers agent then the buyer agrees to.

This is the situation many For Sale By Owners find themselves in when an interested buyer has signed an agency agreement with a Realtor. The agent will want the FSBO to pay their fee even though the agreement is with the buyer. In those cases it’s OK to negotiate that fee if the FSBO decides to work with the buyer’s agent.

Does A Seller Need A Realtor

If you don’t like the hassle of mowing your lawn, as I don’t, you hire a lawn service. If you don’t want to deal with selling your house, it requires some work, then hire a Realtor. There is still work to do, like getting your house ready, but a Realtor will help, for a hefty fee, of course.

To save thousands of dollars sell your house yourself!

Joel

Realtors Sell Their Homes Without A Realtor

by Joel Weihe

When selling their personal homes many Realtors avoid the MLS therefore avoid other Realtors. By doing so they can sell their homes themselves. Without using another Realtor. If there’s not another Realtor they won’t have to pay one hence they keep their money. Same as I’m suggesting you do.

When you hire a Realtor he posts your house to the mls. The internet portals like Zillow, Trulia and Homes.com then pick up your listing. A prospective buyer searching on those portals finds your house and ask their agent to schedule a showing. The buyer views your home, likes it and as a result writes an offer, through their agent. You accept the offer, through your agent, and now you are in contract. Yay! But now you have to give up 6% of the contract price because you hired a realtor to do something you could have easily done yourself. If your buyer doesn’t have a realtor he calls yours to make an offer. Then your agent gets to keep the full 6% and he is very happy.

A Realtor works for his money just like you do so he wants to save as much as possible. By posting his house directly to the real estate portals like Zillow and Trulia he is hoping for a direct call from a consumer so he can avoid paying transaction fees. I have Called on For sale By Owners at the request of my clients only to find out the person selling is indeed a real estate agent. I can’t find the house listed in the mls. It’s smart because a Realtor knows where people are looking. As long as the house is priced correctly at market value and in good condition it will sell. Most likely directly to a buyer found on one of the popular real estate portals.

As I say we work for our money. It’s not always easy and that’s why we get paid so much. I believe it’s still something you could easily do yourself. A lot of real estate deals slide though smooth as silk, some not so much and some never close at all. If you follow our instructions chances are you will have a successful transaction.

It will take some work. A couple hours a day once you’re up and running for marketing, showing and eventually negotiating. But again, by following our tips and subscribing to our Easily Sell Your Home Yourself you’ll see how you too can sell your house For Sale By owner and keep your money.