How do Realtors Get Paid?

The common misconception is that when a Realtor sells a home they get 6% of the sales price. Now we all know commissions are negotiable and technically this statement is true, but what people don't realize is that half of the commission goes to the buyer's agent, or selling agent. Let's look a the following example on how a new-to-the-business agent would get paid on a $300,000 sale at a 6% commission.

Sales Price: $300,000

$18,000 Gross commission to Listing Broker
-$9,000 Given to cooperating Buyer's Agent

$9,000 Gross commission to Listing Agent
-$540 Most large companies charge a 6% affiliate fee

$8,460
-$4,230 Most new agents start at a 50% split with their company

$4,230
-$635 Let's assume the agent spent 15% of their commission marketing the property

$3,595
-$1,079 Take out 30% for tax purposes

$2,516 Agents Net Income

If the agent sold 13 homes at at average sale of $300,000 that's $4 million worth of real estate sales in one year! Wow! This agent must be rolling in the dough! But in reality that would equate to a net income of $33,500 for the entire year. And that does not include any other costs such as buying office supplies, gas and other business expenses such as magazine, newspaper and direct mail ads. You can see that a "successful" agent in this business can very easily net less that $30,000/ year with 13 sizeable transactions.

So the next time you see an email or postcard from a Realtor that says, "Multi-million Dollar Producer", you should probably feel sorry for them.