How Are Real Estate Agents Paid?

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100% commission. Agents are paid when a transaction is completed. If the deal doesn’t come together, there is no compensation for trying. Agents collect upon closing.

Sellers pay all commissions. That’s right buyers, having your own representation is free. I highly recommend it.

Here’s how it works. When an agent is interviewed for a listing, that’s when the commission is negotiated. The most common rate is 5% of the purchase price. That is usually split between the buyer’s agent and listing agent. So, 2.5% apiece.

Sometimes the commission is lower and sometimes it’s higher. It is usually a private negotiation between the seller and listing agent. Once a home closes, escrow holds back the commission amount and it is distributed to each broker a day or two after escrow closes. The broker takes a percentage and the rest goes to the agent. The broker typically takes anywhere from 20-40% depending on the agent’s volume.

Hang on… who’s escrow?

Escrow is Switzerland. It’s an independent & neutral third party company that facilitates the transaction between the buyer and seller.

And….. what’s the difference between an agent, broker, and brokerage?

An agent is a licensed real estate salesperson – aka all of us Realtors running around. The broker is the next level up and requires additional licensing. All agents must either be a broker or work for a broker. Which brings us to “brokerage” – which is simply the business of acting as a broker.

So, here’s how it works in real life for us, Griswold’s. Bob and I are agents. Our broker is Pacific Sotheby’s International Realty. Pacific Sotheby’s is in the business of real estate brokerage.

John is a “broker associate”, because he has his brokers license, but chooses to work for or “hang his license” with Pacific Sotheby’s.

Why work for a brokerage if you have your brokers license? Brokerages provide tons of support, marketing tools, legal protection, a powerful brand, an agent community… etc.

In conclusion! While the majority of agents are paid as outlined above, there are always exceptions to the rule. Some brokerages have other models. More on that another time. Cheers!

Katie Griswold is a Realtor with Griswold Group @ Pacific Sotheby’s in San Diego, California. Working alongside her brother, John and dad, Bob, the Griswold’s serve buyers and sellers throughout greater San Diego county. To get in touch with Katie, email griswoldgroupproperties@gmail.com.