How Do Real Estate Agents Get Paid?
REALTORS® and otherwise licensed real estate agents are typically compensated by the seller in a real estate transaction. Here’s how it works:
A seller lists their home for sale with a real estate agent for a fee known as a commission. This commission is not set in stone by law, and is always subject to negotiation. Generally speaking, half of this fee is offered to a buyer’s agent (an agent representing the buyer in the transaction) through that region’s MLS or Multiple Listing Service.
So, REALTORS® and otherwise licensed real estate agents get paid by the seller. Even though your buyer’s agent represents you, they are paid by the seller in most cases. That’s why, as a buyer, it is a great idea to get representation – it’s generally no cost to you, and a good REALTOR® can be an invaluable resource. Real Estate Commissions are an expense of selling real estate, just as performing due diligence and having a home inspection or a loan origination fee is an expense of buying real estate.
So, When Would a Buyer Pay a Buyer’s Agent?
Sometime, when working with your REALTOR®, you might become interested in a home that is not marketed in an MLS (generally a for sale by owner or FSBO for short), and therefore are not offering compensation to an agent. In this case, you could be obligated to pay your agent depending on your Buyer Agency Agreement, but this will almost never happen because most agents will ask the seller to compensate their firm. Most sellers are more than happy to do so, and they are still saving half of what they would have otherwise paid in commissions. The other circumstance your agent could look to you for compensation is if the home you are interested in isn’t offering as much as they are expected to get paid via the MLS – in this case, they might look to you to bridge the gap and compensate the additional half of a percent or whatever the case may be. I generally never look to my buyers for compensation – I’ve represented A LOT of buyers, and it has never cost any of my buyer-clients a dime!
So, What Does a Buyer's Agent Do Exactly?