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.
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.