Realities of Real Estate: The role of real estate agents and how they get paid

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How real estate agents can represent someone varies from state to state, and specific buyer or listing agent agreements can also vary, depending on the real estate company you employ.

In the past, agents represented the seller, and that was it. Today, it’s very different.

According to the Maryland Real Estate Commission, there are actually five different forms of representation that can exist between agents and their clients. They include seller’s agent, cooperating agent, presumed buyer’s agent, buyer’s agent and a mysterious thing called dual agency.

Plus, in some cases, an agent can be more than one of these things at a time. Confused yet? Don’t worry if you are. There are even real estate agents out there who are a little shaky on the subject.

We could go on from here and explain the details behind what makes a presumed buyer’s agent versus a cooperating agent, and how a buyer’s agent or a seller’s agent could also be a dual agent. But unless you’re a lawyer, you’ll either fall asleep or abandon this column and flip to see what’s on sale in the Best Buy flyer.

So, we’ll spare you the details. Even for agents, this topic can make for a migraine. Nevertheless, it’s an important issue, and there are a couple of basics you should know.

At your first scheduled meeting with a real estate agent, they should ask you sign a form called Understanding Whom Real Estate Agents Represent. This form is not a contract. It does not obligate you to that agent or anyone else. It is a notice of information, required by law, to help explain how agency representation works.

Read it. If you don’t understand what it says, ask the agent. And, if you get the feeling the agent doesn’t understand, then get a new agent.

A positive change for real estate is that buyers now have a right to representation. When we first bought our Annapolis home, buyer agents didn’t exist. Back then, you may have thought the agent driving you around was working on your behalf, but actually, that agent’s sole responsibility was to represent the seller. It was truly an age of “buyer beware.”

So, if you haven’t bought a home for a while, buyer agency might be new to you. Today, a buyer can benefit from an agent’s knowledge, and in most cases, it will cost you little or nothing, since the seller has usually already agreed to pay the buyer’s agent a commission.

That brings us to the next subject: Exactly how do agents get paid?

When sellers list their house with an agent, they make an agreement to pay the agent’s broker a commission. All brokers independently set their own commission rates, so it can vary from company to company, and also depend on the type of service that real estate firm provides.

For illustration purposes, let’s say you agree to pay a 6 percent commission on the sale your house. For a $330,000 house (the median price in Anne Arundel County), that’s $19,800. But, don’t think for a minute that your agent is going to get all of that. In most cases, the commission will be divided at least four ways.

First, the listing broker will share that 6 percent commission with the buyer’s broker. Then, each broker will split the commission again with the agents. As a result, the $19,800 commission can quickly become something closer to $4,950 for the agent you hired to sell your house and $4,950 for the buyer’s agent. Plus, there could be fees to a referral company, further reducing the agent’s commission by another 20 percent.

In the end, an agent might make as little as $3,960 on the sale of an average home. These numbers can vary according to the contract you make with the listing broker, what you’ve agreed to pay the buyer’s agent, as well as how the brokers have agreed to split the commission with their agents. So, what do agents typically do for their $4,000 payday?

Value in experience, expertise

In today’s market, selling a house is no easy thing. An agent may work for many months to sell a house, and for a listing agent, it doesn’t take long to invest a significant amount of time and money.

Agents don’t get paid any kind of salary from the broker. In fact, there are many expenses an agent will pay even if they don’t make a sale — things like association dues, business and medical insurance, office fees. Like any business, there is overhead that must be absorbed.

Agents work entirely on commission, and the agent will normally pay out of pocket for all of the advertising and marketing materials associated with selling a home. In the end, if the house doesn’t sell, a listing agent will get nothing, nor will they be reimbursed in any way for their time and out-of-pocket expenses.

With a buyer’s agent, there is also a tremendous investment in getting to the settlement table.

In today’s market, buyers can frequently be indecisive, so they may want to see quite a few homes before making a decision. We’ve had a couple of cases where buyers looked at well over 100 homes, then for one reason or another, decided not to buy.

As with a listing agent, buyer’s agents will also make nothing, unless a sale is made. Additionally, much of the work for a buyer’s agent can come after the contract is signed. There are home inspections, coordination with the title and mortgage companies and a whole lot of hand holding that is necessary to actually complete a transaction.

The reason most “for sale by owner” contracts never get to settlement, is because there aren’t any agents available to help navigate the many issues that must be resolved for a successful sale. Time is money, and you’d probably be quite surprised at how much time both listing and buyer’s agents must devote to each transaction.

Finally, the worth of an agent isn’t solely measured in terms of time and money. There’s also great value in an individual agent’s experience and expertise.

On the listing side, good agents can easily justify their fee with marketing savvy, effective pricing, the ability to properly expose your property to a vast pool of potential buyers and management of the transaction so as to insure a smooth settlement.

On the buyer’s side, the seller has usually already agreed to pay the buyer’s agent a commission. So, you as a buyer can take advantage of a buyer agent’s knowledge, without really having to dig into your own pocket.

Some buyers think that working directly with the listing agent will somehow save the seller money. But, for more than 95 percent of listings, that’s not true. The seller will pay the same amount of commission, regardless of whether the buyer avails themselves of representation through an agent.

In real estate, it’s very important that everyone is clear about who’s representing who, and how the agents are going to be paid. The majority of complaints that come before the Maryland Real Estate Commission are about money or confusion over fiduciary responsibilities.

As a result, if you’re a buyer or a seller, don’t be shy about asking the questions necessary to make sure you understand. That’ll go a long way toward preventing problems down the road.

Bob and Donna McWilliams are practicing real estate agents in Maryland with more than 25 years of combined experience. Their email address is [email protected].