People who have ever sold a house know how real estate agents make money, they get a percentage of the total sales price. Most first time buyers have no idea how real estate agents make a living. Most people don’t understand the concept of “commission sales” or being paid only for actual financial results incurred.

Real estate agents only get paid when homes sell. There are a few exceptions where flat fee brokerages charge up front fees, but most full service real estate brokerages don’t make a dime until houses actually sell. Real estate agents aren’t paid by the hour, they don’t make a salary, they make commissions based off the sales price of the property they aided to sell.

One of the most frustrating things for real estate agents is that they can spend hours and hours with clients and never make a dime. They can get homes under contract, aid with arranging home inspection repairs, show hundreds of houses, and then get nothing from it. If a potential buyer fails to qualify for thier home loan, the agent gets nothing. There are also those rare occasions where real estate agents do relatively little, yet still get large commission checks. During the glory days of the housing boom, real estate agents would simply place a house on the MLS, then present a few offers to the sellers the next day, and receive a $10,000 commission check a few weeks later.

Now real estate agents rarely make all of the money that sellers actually pay. In most real estate transactions there are actually two brokerages involved; the listing broker and the buyers broker. The listing agent belongs to a brokerage that represents the seller. If a house sells, the brokerage is entitled to a portion of the real estate commission, usually about 2-3% of the gross sales price. Real estate agents are generally on “commission splits” meaning the percentage of the close they actually gets. Typical splits are between about 50-85%. So, if a $200,000 listed at 6% sells, a listing agent would get 3% while the buyers agent would also get 3%. This is a brokerage commission of $6,000 for each brokerage. Now, if the real estate agent had a 70% split, they would then be entitled to $4,200.

The average person thinks that real estate agents spend most of their time showing houses, writing up contracts, and cashing huge commission checks. Nobody likes paying 6% of their gross sales price when they sell a house. Sellers always think that real estate agents make a fortune.

Real Estate agents, at least the successful ones spend the majority of their time “prospecting” and working real estate leads. They spend their time trying to find business, and keeping track of past clients in order to get future business and referrals.

Once in a while there are agents who do spend most of their time showing homes and writing contracts. These are agents who have been in business for years, or who have a surplus of quality real estate leads. New agents rarely ever have this problem. It’s not uncommon for new real estate agents to have their licenses for months before they ever show a house.