Working With a Real Estate Agent for the First Time – FAQ of First-Time Home Buyers

How do real estate agents get paid? Who has to pay for the services of a real estate agent when buying a house – the seller or the buyer? And how can you know if the real estate agent’s fee is fair? We’ll answer the most frequently asked questions by home buyers who are working with a real estate agent for the first time!

According to the 2016 Profile of Home Buyers and Sellers from the National Association of Realtors, as many as 88% of buyers used the services of a real estate agent or broker.

Most of them know about all the advantages of having a trustworthy and knowledgeable Realtor by their side, but the exact way in which Realtors work and operate still remain uncertain to many of them. Let’s have a look at a few common questions.

How do real estate agents get paid?

Only a very small number of real estate agents works on a salary.

They are usually paid commission. Which means: if the Realtor doesn’t close a deal, he won’t get paid.

This is very important to be cognizant of, especially if you’re working with a real estate agent for the first time.

Don’t expect them to make enormous efforts to find and show you a plethora of fine houses, only to decide shortly afterwards that you’re actually not sure about buying a house anyway.

The amount of work included in this entire process chain is actually quite big; appreciate their efforts, even though you might not see them immediately.

So once a sold gets sold, the real estate agents earn a commission which is based on the final sales price of home that got sold.

Who else gets paid when a house is sold?

First-time home buyers need to know for sure who and how much they are going to pay when using the services of a realtor.

Let’s first have a look at the difference between agents and brokers.

What they have in common is that they both own the appropriate licenses for a particular state. However, their roles are different: agents are in charge of the sales part and work for a particular broker.

As opposed to brokers, who are allowed to be paid a commission directly by the consumers, agents can’t work independently. Agents act as salespersons and all fees and commissions have to be paid to a broker, who then splits the commission with other involved parties.

So, working with a realtor, in fact, usually includes working with many different parties as well, even though you might not be aware of it, especially if you are a first-time buyer.

Parties that often get paid after a real estate transaction – which therefore get a share of the commission – are:

• The listing agent, who took the listing from a particular seller;
• The listing broker, with/for whom the listing agent works;
• The buyer’s agent, who represents the buyer;
• The buyer’s agent’s broker, with/for whom the buyer’s agent works. What many home buyers who work with a real estate agent for the first time tend to overlook that real estate transaction actually include other people as well. Working with a realtor is more than just looking at houses and signing the final deal!

Who is going to pay the commission?

This point is actually very simple and clear, but the background of it may make it fuzzier than it necessary.

As a general rule: if you are buying a house and work with a real estate agent, the seller pays the commission.

So, after closing the deal, this fee is subtracted from the sum of the home sale and distributed to the agent and his broker.

Don’t let anyone convince you to pay for fees, commissions or anything similar without having read everything – every word and paragraph – on the paper you are supposed to sign and without double-checking with someone you trust!

Being aware and knowing about what kind of payments you will be looking at is one of the first and most important first-time home buyer’s tips you’ll hear – for a good reason!

But even though the seller is the one who is actually and directly paying the commission, the buyer is paying in his own pay for it too. Why? Because the seller is the one determining the listing price of the house he wants to sell. If the agent’s commission is high, it sure will have an impact on the price.

Although buyers are not directly paying for the commission, they are paying for the house, and the commission is just part of that.

So, the commission is the realtor’s salary?

Not quite.

If you look at the whole process chain of events, which stands behind every real estate transaction, you’ll be amazed how versatile and flexible real estate agents actually have to be.

There is, in fact, a whole lot to do for a real estate agent before he is actually able to show you a particular property: they need to prepare the home for sale (which can be quite time-consuming in some cases) and they need to perform all the right marketing activities to get to the right potential buyers.

Commissions therefore not only cover the “salary” the agent gets, but these activities that come with every usual real estate transaction are paid for with this money as well.

What’s also important to keep in mind when working with a real estate agent for the first time is that real estate agents have business expenses and taxes to pay as well. So be careful before judging too harshly.

Of course, the commission needs to be reasonable. 6% is a standard value, but you might hear lower numbers as well. Asking your realtor about their fees and what they exactly charge for is an important point, so don’t hesitate to bring this up.

And even more important: a good real estate agent is definitely worth it. Find a suitable and experienced realtor, and you’ll see how easier the entire home buying process gets when you’re working with a real estate agent, especially if you’re buying a house for the first time. Good luck!