How Do Real Estate Agents Get Paid?

SELLERS: READ THIS FIRST- How much do real estate agents charge sellers? This will give you an overview of before digging into this page.

BUYERS: READ THIS FIRST – Top Reasons Buyers Need A Real Estate Agent This may answer your questions without needing this page. 🙂

Most seller’s ask “What’s your commission?”

That sounds like a straight forward question but it’s actually not. Let’s talk about how this works in Minnesota.You see, the total commission charged to sell your house is usually NOT the commission the agent is getting paid directly. (See Diagram below.)First it’s split between the listing broker and the buyers broker.Then each broker takes a cut and passes the remaining portion to the agents. Then the listing agent must use the portion given to them to run their business – after all – every agent is an independent contractor – they are NOT employees of the broker. They do not receive a salary. (Note: Some staff at the brokerage are licensed agents but when they are practicing real estate sales they are independent contractors.)Some of the expenses an agent pays out of that commission are:Taxes/Accounting, Office space/supplies, Car expenses, Business Insurances, Advertising/Marketing, Continuing Education, Technology, Etc And of course what is not spent in those areas is what is left for them to take home; their ACTUAL COMMISSION to feed their families!

So, when you ask an agent what their commission is, you may be better served asking them what they do for their commission.  (WHAT DOES A LISTING AGENT DO FOR A SELLER?)

Things to consider:

If an agent isn’t making much commission on each sale, they need more sales. The more sales they need, the less time they have to put into each sale.

Asking agents to cut their commission is a slippery slope. Since most expenses are set, if they have a choice to take money out of the pocket of their family or spend less money (time) marketing your home, which do you think is more likely?

Each time an agent meets with a seller/buyer, they are interviewing for a job. If they get through the interview (meeting) and they don’t like the employer (seller/buyer) or what they are willing to pay, they may just look for a new job. Good agents don’t have trouble finding “new jobs.”

Have you ever heard the phrase “you get what you pay for”? I hate to use that because it’s not hard truth. Some sales people are just slick talkers and some marketing people are just REALLY good at their jobs but it’s a good segway into the value of the agent. Isn’t an educated, experienced, resourceful agent worth more?


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