How Are Real Estate Agents Paid?

Most homes for sale are sold through a real estate broker. Typically, the owner hires a licensed real estate broker to market his or her home and agrees to pay the broker a commission if and when the property sells. The broker cannot actually sell the property, but instead is given the authority to market and solicit offers or what some people call bids. We call this listing a home. The listing agreement the seller signs is a personal services contract between the home owner and the broker in which the owner agrees to pay a success fee or commission if the property is sold to anyone within the time limits of the listing.

In most parts of the country including San Mateo County, the listing is entered into the Multiple Listing Service (MLS) database where information of homes for sale (listed) is distributed to participating brokers. The listing broker agrees through the MLS rules to share some portion of their total commission with the co-operating broker who represents the buyer. The MLS listing states what the listing broker is willing to pay to the broker who is responsible for finding the buyer and writing the contract.

Here’s an example, let’s say that a home owner lists his home with a broker and agrees to pay 6% commission when the home sells. The listing broker lists the home in the MLS and agrees to pay 3% to the broker who finds the buyer. The broker who brings the buyer and writes the contract will be paid 3% for his services, money which comes from the 6% the seller agreed to pay the listing broker for a closed sale, not from the buyer.

All real estate commissions are by law negotiable. There are many different levels of service available to the home owner with different associated fees. Full service real estate brokers will generally charge more for their services than a limited service “discount” broker. Home owners should carefully consider the services they need from a real estate broker and choose accordingly. As with any personal service business, skill, proficiency and competency does vary among agents.

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