How Do Real Estate Commissions Work?

One of the more common questions of home sellers, in addition to “how do I sell my house fast?” is “how much money do real estate agents make?”


At this point, it’s common knowledge that real estate agents make anywhere between 5% and 6% of the final sales price. This isn’t wrong, because it’s true. But at the same time, it’s also misleading. This is because, while real estate agents do indeed receive compensation in the form of 5% to 6% of the final sales price of a property, that’s not exactly how much money they pocket per sale. 


The reality is that real estate agents make far less than the 5% to 6% that most people believe. This is why there’s far more incentive for them to sell numerous reasonably priced properties at a consistent pace as opposed to making a big sale or two every now and then. 


So, the notion that real estate agents want to jack up the price of a property to receive a hefty commission is both wrong and absurd. 

The Truth Behind Real Estate Commissions

The reality behind real estate commissions is that there are a lot of expenses involved in listing a property. This includes, among others, advertising and taking photos, as well as videos, showings and open houses, and of course, the time that a real estate agent has to spend to meet prospective buyers to sell a property. 


But that’s not all. That 5% to 6% real estate commission isn’t final either. This figure gets divvied up to at least 4 parties. This includes the seller’s real estate agent, the buyer’s real estate agent, and their respective brokerage companies. 


So, for example, in a typical home sale with a 6% commission, each of the four parties make around 1.5% each. In more unusual cases, one party might make more than the other, such as when the buyer’s real estate agent receives more compensation compared to the seller’s real estate agent. However, in most cases, real estate commissions are split equally among the four parties. 

The Cost of Being a Real Estate Agent

Working as a real estate agent might sound like a lucrative career, but it’s expensive. This is because you pay for a lot of things. This includes the use of office equipment, as well as national, state, and local dues. In addition to this, most of the costs involved in getting clients to buy a property — wining and dining, among other things — come out of the pockets of real estate agents. 

Do I Still Need a Real Estate Agent?

Good question. After all, working with a real estate agent is one of the first answers you’ll encounter when you look up “how to sell my house fast NJ”, and after having read our discussion, you’ll agree that all a real estate agent wants to do is to sell your house for a reasonable price as fast as possible. 


The longer that your property is listed and takes to sell, the more money out of their pockets that a real estate agent has to pay for advertising and for meeting with prospective buyers, which means less money for them in the long run. 


So, the next time you try to negotiate a real estate agent’s commission fees, just remember that you get what you pay for. 


But of course, if you really want to sell your property as fast as possible, there’s always the option of working with a cash buyer. This way, all you have to do is to let them know that your property is on sale, wait for them to make an offer, and accept the offer if the price is reasonable for you. Afterward, you’ll just have to wait for the deal to close, and you’ll be paid in a few weeks.

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