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Buying or selling a home can be complicated, and real estate agents are paid to guide you through the process. They spend time pulling property listings, touring homes and doing pricing analysis for their clients. But how exactly do they get compensated?

While there are some real estate agents who work solely as independent contractors and are paid a salary, most operate in connection with brokerages. These are regulated companies held to high business standards, which help ensure consumers are protected. In order to operate legally, brokers require that real estate agents share their commission earnings with them. In addition to the standard 5-6% of a sale, brokers also take their own cut for themselves and other expenses associated with running a business. The result is that the actual amount an agent receives can be significantly less than what was initially negotiated. Also read

A recent lawsuit against the National Association of Realtors (NAR) has brought increased attention to how real estate agents are paid. The lawsuit alleges that the traditional model of paying a broker commission on behalf of home sellers is anticompetitive, and has prompted some industry leaders to reconsider their pay models.

Even if the NAR is ultimately cleared of anticompetitive practices, it will likely be awhile before any changes are made to the current commission structure. In the meantime, buyers and sellers need to be aware of how commissions are paid so they can make informed decisions about their broker choices.

How Sellers Pay the Agent

The most common way home sellers pay the agent is by including a real estate commission payment in the sales price. According to Ruth Johnson, a real estate agent in Austin, Texas, this is the most typical method.

However, she cautions that this doesn’t mean the seller is paying the agent directly. Instead, the commission is sent to the listing and buyer’s broker. The brokers will then split the commission and pay their respective agents.

As with any professional service, there are some real estate agents who are better than others. This is why it is important to carefully consider the commission rates of an agent before hiring them. If you are thinking of becoming a real estate agent, understanding the current commission structures is an essential part of your research.

In some cases, buyers may pay a portion of the agents’ commission at closing. This can be a good way to reward an agent who has gone above and beyond, or it can serve as a penalty for an unsatisfactory transaction.

It is important to remember that, as with all income, real estate agents must pay taxes on their earnings. This includes federal, state and self-employment taxes as well as other business-related expenses such as insurance, multiple listing services fees and advertising. These expenses can sometimes cut into an agent’s overall commission earnings, making it necessary to manage these expenses wisely. In addition, as independent contractors, real estate agents must track their income and expense deductions for tax purposes.


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