I remember when I was ready to buy my first house, I didn’t think I could afford to use a Realtor. The truth was that I didn’t know how Realtors got paid and my thoughts were wrong. That was before Google and I couldn’t just look it up online. A friend of mine finally talked me into calling her Realtor and even though I agreed to have him help me find a house, I still didn’t really understand how he got paid.
Realtors generally get paid a commission for the service they provide their clients, but there is a big misconception that Realtors take home huge commission checks. There’s a lot of hands in the cookie jar, so I want to clear up how Realtors actually get paid.
In Indiana, all commissions are paid to the Brokerage Firm who hold the Realtors license. So in my case, Century 21 Scheetz is the Brokerage Firm who holds my license. When I sell a house, the title company writes out the commission check to Century 21 Scheetz, not me.
Our Metropolitan Indianapolis Board of Realtors (MIBOR) is a cooperating Board, which means that the Brokerage Firm who is selling a house agrees to pay a part of its commission earned to the Brokerage Firm who produces a buyer for sale of the house. You may have heard of the acronym BAC, which stands for Buyer Agency Commission. That is the amount of commission the selling Brokerage is willing to pay the buyer’s Brokerage. When it’s time to sell your house, you will set the commission rate for your Brokerage and the cooperating Brokerage when you sign your listing contract. Your Realtor will advise you on the appropriate commission rates for your market.
So after the Brokerage Firm receives the commission check from the title company after the closing, it will withhold the operating fees it charges its Realtors and then pay the Realtor her final commission. Operating fees are sometimes called desk fees or splits, but the fees cover the firm’s cost to do business, like building rent, administration and management expense, or marketing expenses.
You can see from the chart above there is a lot dividing and sharing of the commission. If a home is listed for $350,000, you can expect the total commission of that home to be somewhere between $17,500 and $24,500 (depending on your market rates), but it will be shared between the seller’s and buyer’s Brokerage Firms, operating fees will be withheld and then the Realtors will receive their share of the commission.
On my email signature I have a text line that says, “My services are free for buyers!” and it’s true. Buyers don’t pay my commission. The commission for most Realtors is generated by the home seller.
My true love is selling houses, after all I was a marketing executive for more than 25 years. I love marketing houses, but I am also happy to help buyers find their next home. If you’re ready to buy or sell a house, let’s talk!
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