Agent commissions breakdown.

 How are Real Estate Agent's paid?

You may think it's a pretty simple answer; their client.  But this isn't 100% correct in every transaction.  

When buying a home, you pay your agent 0% of the homes price in commissions directly.  The seller pays your agent's commission and you may be responsible for your closing costs.

When selling a home you will pay on average 5%-6%, typically out of the proceeds of the sale of your home, that is split between your listing agent and the buyers agent.  

Of that split commission,  Agents are typically responsible for paying a percentage to their broker, an amount to their company (office fees, marketing expenses, and professional organization and association dues to maintain an active status and access to the resources needed to perform the duties of an agent.  

Can you negotiate commission fees?
Some agents will lower their commission fees, particularly if they are representing both the buyer and the seller in a home sale (also known as dual agency, not legal in all states)

Do you have to pay commission if you don’t buy a home?

Real estate agents are paid at the end of the process, so if you don’t buy a home, they won’t be paid for their time. On the other hand, if you decide you don’t like your agent and want to work with someone new, it may be difficult to break up with them if you’ve signed a contract (also known as a buyer’s agency agreement). Make sure to ask the right questions before signing a contract!

Do you have to pay commission if your home doesn’t sell?

Short answer: Probably not. Real estate agents are paid when you sell your home, so if your home doesn’t sell, you shouldn’t owe them a commission.
Long answer: Read the fine print. Generally, your contract with your agent is bound to a certain time period. Unless your contract says otherwise, you are typically not required to pay your agent if the contract expires and your home doesn’t sell. However, there may be some exceptions; some examples include:
  • Your agent found the buyer: Some contracts state that you still owe your agent commission after the contract period ends if your buyer was a prospect during the term of the agent’s contract.
  • You back out of the sale: After an offer is accepted, you are responsible for paying commission to both real estate agents immediately. If you decide to back out of the sale last minute, you still have to pay both real estate agents their commission. If the buyer backs out, you may still be responsible for paying the commission — but can potentially sue the buyer for breach of contract.

Bottom line

Read all contracts carefully. Find a real estate agent who’s paid on your satisfaction, not just commission. 
*Real estate commission varies by transaction.