How are REALTORS® compensated? Is there a REALTOR® fee if you are selling a property? Is there a REALTOR® fee if you are buying a property?

Most of today's workforce is compensated either by an hourly wage, or perhaps a weekly salary. REALTORS® however, are compensated with commission fees. A commission is a written authority giving a person (i.e. REALTOR®) the right or duty to do something (i.e. sell a home). The fee for this service is a percentage of the final selling price for the property.

It's important to understand that there are two sides to the sale of a home. There is the "selling" side, and there is the "buying" side. Normally, there is a REALTOR® who works on behalf of the seller, and a different REALTOR® who works on behalf of the buyer. (Sometimes a REALTOR® works on behalf of "both" the seller and the buyer. This is known as dual agency). The owner of the home will "hire" a REALTOR® to market the home, and to represent him in the negotiations of the future deal. Part of the marketing is to place the home on the local MLS® System. By doing this, the seller's home will now be noticed by all the other REALTORS® who are working with buyers. The seller and his REALTOR® negotiate a commission percentage for this "total service". This percentage is then divided. A share will be given to the seller's REALTOR®, and a share will be given to the buyer's REALTOR®. At this point, it would seem that the responsibility lies with the owner of the property to compensate both REALTORS® in the transaction. This is probably true in 99% of the deals that are done. (However, it is also possible for the buyer of a home to "hire" a REALTOR® and compensate them directly).

To answer the opening questions; Yes, there is a REALTOR® fee when you are selling, and there is "rarely" a REALTOR® fee when you are buying. This may pose another question however... Why is it done this way? Many real estate experts will say, "If there is no buyer for the property then there is no deal, and if there is no deal then there is no commission fee to pay". So, in effect, the buyer "creates" the commission fee just as much as the seller is "paying" the commission fee when a deal is struck. The fee the buyer ends up creating is built into the mortgage he places on the property. Most buyers, when considering home ownership, will save for a downpayment and also the required closing costs. Few have enough money left over to compensate their REALTOR® as well. So, the buyer uses the services of a REALTOR® to help locate a home and negotiate the deal, who will be compensated from the shared commission percentage from the seller. After placing the mortgage on the home, and paying the agreed upon price, then both the buyer and the seller will (effectively) end up compensating their respective REALTORS®, when the commission fee is deducted.

REALTORS® are compensated on the closing date (the day the buyer pays for the home and receives the deed of ownership from the seller). However, if a deal is never made with the client, then there is no compensation. As of this writing, REALTORS® cannot charge a retainer fee to cover costs they incur, and they actually work for "free" until a deal is made. When a REALTOR® helps a seller, he will incur the costs of "marketing" the property, from his own pocket, and he provides his personal time and effort in hopes of making a sale. If a REALTOR® helps a buyer, he will incur the costs of "locating" a property, from his own pocket, and he provides his personal time and effort in hopes of making a sale. You can now see why most REALTORS® like to provide concrete evaluations for sellers to arrive at proper listing prices, and also why REALTORS® like to have signed buyer contracts when providing services to buyers. Sellers who properly price their home at the outset, and buyers who sign an agency contract, are showing "good faith" and a "serious nature" to their agency relationship. A REALTOR'S® time is valuable, just like yours is, and they're in the business to not only help people, but to work hard for future sales and their livelihood.