How do realtors get paid?

[cocoa_femme]

DH and I are thinking about selling our house and renting an apartment to save money. I was wondering if anyone could tell me, how realtors get paid? Do we need to have money saved up to pay them?

TIA!

[Jenyfer9]

If I'm not mistaken, they get a commission from the selling price of the house.

[udsweetpea]

They are paid out of the proceeds of the sale of your house. This ranges between 4-8% depending on your location. You don't need any money saved up.

[mamax2]

Traditionally, full-service Realtors are paid a commission based upon the sales price of your home. The rate will vary significantly by where you're located and even from firm to firm. You should interview 2-3 agents and be sure to ask each of them what their commission is and how much they'll be offering a Buyer's agent (again, a % of the sales price, but it's important to know that they're offering enough to make Buyer's agents want to see your property). Ask them what services are provided for their rate.

There are other 'discount brokers' who may charge a reduced rate or even just a flat fee, but the level of services they provide will likewise be reduced.

eta: I don't know anything about your specific market, but selling a home to rent an apt may not really save you anything. I'd encourage you to speak with an accountant or financial advisor to be sure this is a wise move. You will lose the tax break of owning a home and since the market is slow in many places, you may not get top dollar for your property. Perhaps a refinance would work? I'd certainly look at other options first.

[lml41981]

You pay both buyer and seller agents depending upon what is the norm in your area. In my area, we pay 6% normally (unless your own agent is giving you a discount). 3% goes to each agent, generally.

The money comes from the proceeds of the sale - regardless of whether you're making profit or taking a loss. The title company will cut the checks to the agents and you won't have to do anything except to sign a piece of paper authorizing them to issue the checks.

[cocoa_femme]

Thanks for your replies everyone!

mamax2, thank you for your advice/input. We are exploring every avenue. The tax situation in Detroit is out of control, so renting would probably turn out to be cheaper. But, we are also looking into refinancing.

[Sarah]

I think I can tell the answer to this question, but reassure me-
My mom is selling her house. She has a realtor (selling agent) she works with. So if someone comes and buys the house from my mom, with their own agent, the money for both realtors comes out of the sale price? So my mom basically pays for both? Or does the buyer somehow pay, too? It seems like the seller is paying for the whole thing, then, right?

And if my mother buys another house- let's say it costs 300k. She pays 300k to the seller, and then the realtor fees (for both realtors, hers as the buyer and theirs as the sellers) come from the house price? Or does she have to pay another X% on top of the 300?

Sorry to be dumb, but I am horrible at figuring out things like this.

[Tanya]

In both cases, the money comes from the sellers. The buyers are technically paying too, in that the cost of the realtors' services is factored into the sale price. The buyer never has to come up with their own money, unless they run into a FSBO (for sale by owner) situation where the seller will not pay realtors' fees. In that case, the sales price could be bumped up by the 3% (standard) the buyers' agent charges so again, no cash is expected.

[pixielou]

sarah when your mom sells her house, she agreed to a commission structure with her real estate agent. it was probably around 6%. say she sells her house for $400k - a commission of $24k is paid, and your mom nets $376k on the sale. typically half of the commission would go to the sellers agent, and half to the buyers agent. if the buyers did not have their own agent, and used the sellers agent, teh sellers agent would collect the whole $24k.

when your mom buys - if she buys a house for $300k - she pays $300k. the seller would be responsible for paying (again assuming 6%) the 18k in commision to the agents, and thus would only net $282k from their sale.

[Sarah]

sarah when your mom sells her house, she agreed to a commission structure with her real estate agent. it was probably around 6%. say she sells her house for $400k - a commission of $24k is paid, and your mom nets $376k on the sale. typically half of the commission would go to the sellers agent, and half to the buyers agent. if the buyers did not have their own agent, and used the sellers agent, teh sellers agent would collect the whole $24k.

when your mom buys - if she buys a house for $300k - she pays $300k. the seller would be responsible for paying (again assuming 6%) the 18k in commision to the agents, and thus would only net $282k from their sale.

Perfect, thank you so much. Makes perfect sense now!

So do realtors give priority (in their minds, if not technically) to buyers who don't have their own agent?

[udsweetpea]

So do realtors give priority (in their minds, if not technically) to buyers who don't have their own agent?

If buyers purchase a home that is being sold by a realtor, the seller's realtor automatically becomes a dual agent and represents both sides. Therefore, she gets the entire commission.

[jajacobsen]

Sarah - what do you mean by priority?

Say a realtor has a client with a house for sale. If there are two potential buyers - one represented by an agent, and one not represented by an agent, the realtor is bound by a fiduciary duty (as in bound by law) to the seller to negotiate the best price for the seller, not encourage the sale to the non-represented buyer over a better offer by the agent-represented buyer, with the goal of increasing his or her own commission (as in not having to slpit it with the buying agent).

However, it gets difficult. Not all offers are created equal and the agent represented buyers might have a less appealling offer not just in terms of price, but in contigencies, closing shedule, etc.

However, with two equally qualified buyers with offers with similar contingencies (or none), and simlar closing time frames, the selling agent should encourage the seller to accept the highest offer period, whether or not teh agent personally has to split the commission with a buyer's agent.

[Hello Kitty]

Sarah - you can also buy a home on your own without a real estate agent and without dual agency, just doing it on your own (and I personally am getting an attorney in this instance). When the listing agent is the only agent involved, usually, some [financial] consideration will be given to the buyer, especially in an area where most transactions have two agents.

The seller gets their asking price, or a fair market price, the real estate agent gets more cash than they would have otherwise, and the buyer can get some assistance with the mortgage principal balance or down payment.

[pixielou]

If buyers purchase a home that is being sold by a realtor, the seller's realtor automatically becomes a dual agent and represents both sides. Therefore, she gets the entire commission.

this may vary by state. iirc, dual agency is not allowed in massachusetts. it's something i remember some agents telling me at some open houses we attended. in such a case, if the buyers do not have an agent, the sellers agent would typically "assign" one of their co-workers to represent teh buyer.

~pixie

[mamax2]

So do realtors give priority (in their minds, if not technically) to buyers who don't have their own agent?

I was going to post something, but jajacobsen said it so perfectly there's nothing else to add!

Dual agency... ~ Laws vary by state and protocol can even vary by office. For instance, DA is allowed in MD, but my office will appoint a designated agent so that both seller and buyer have representation. Obviously, the broker is still technically the dual agent, but both parties still have an individual agent to focus on them.

Sarah - you can also buy a home on your own without a real estate agent and without dual agency, just doing it on your own (and I personally am getting an attorney in this instance). When the listing agent is the only agent involved, usually, some [financial] consideration will be given to the buyer, especially in an area where most transactions have two agents.

A seller's listing agreement is a contract with the broker. While you *may* be able to negotiate away some commission as an unrepresented buyer, you should certainly never expect to do so. The broker has a contract with the seller and they are the only two parties able to break or amend said contract (listing agreement).

If you approach a transaction without representation, you should expect the seller's broker to capture the full commission. In many cases this is deserving because as the only agent involved in a transaction, you end up doing so much more work and escorting an unrepresented buyer is WORK!

[jajacobsen]

I think it really depends upon the norm of where you live. In Georgia, because new home construction is so prevalent (wherein a buyers agent has a diminished - or no - role), many people buy without a buyers agent representing them. Even with new or existing construction. People just get used to ooking on their own and buying without an agent. I know I have read in the real estate threads here that some posters did not perceive unrepresented buyers as serious but in this locale, many serious (and qualified) buyers are unrepresented.

In our last transaction Dh and I bought without an agent. It probably was slightly more work for the selling agent - but then, she was well compensated for that work. It wasn't nearly as much work as if she had helped us actually look for - or find - the house. She even missed the initial showing! (got the time wrong). We did not feel as if she represented our interests in the negotiating process (nor did we expect her to do so) although she did prepare the offer once we disclosed we were unrepresented. All that said, we did not expect her to "give" anything in terms of making the deal happen. Maybe if you live in an area where everyone expects that both parties will be represented so the realtors expect to split the commission, you could negotiate soemthing, but here - honestly I think the realtor would laugh in your face.


Or at least until recently. GA is just starting to feel the pain of the slow real estate market. Of course, we never had the boom like certain areas did so the contractoion has been less intense. That said, I have noticed a LOT of cold call activity by realtors. Still, I think they will toe the line in not starting a precedent by "giving" too much. They will expect the buyers to stimulate demand by decreasing price or offering incentives. Realtors here are just starting to pay for staging (which is relatively new to houses under $500k here), but that's about it.