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Are Real Estate Agents Commission Only?

Demystifying Real Estate Agent Compensation: Exploring the Truth Behind Commission-Only Structures

In most markets and brokerages, agents are paid in commission only. In certain special circumstances, an agent is paid a base salary for completing duties requiring a license other than sales. Within the industry, there are more jobs than just sales that real estate agents are performing. Some jobs, such as transaction coordinators or licensed assistants will offer base salaries in addition to bonuses.

Although commission is the most common form of income for real estate agents, it has some drawbacks. Things like conflicting interests of buyer and client are a real concern that we will address.

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Why Are Most Agents Only Earning Commission

Most real estate agents earn only commission because it is what clients and agents expect in a deal. Most sellers understand they are not paying the agent if they cannot sell their property. With sellers listing their homes, they have no financial downside if the property does not sell. The listing agent assumes the financial risk and burden of selling their home if it does not sell. If it does sell, the agent benefits from their hard work.

An Incentive to Close More Deals for Their Clients

By structuring real estate sales so that agents are not getting paid until they get their clients to the closing table, they are incentivized to close more deals for their clients.

One of the biggest complaints agents hear from clients is “Why is your fee so high?”. It comes down to the risk that the agent assumes on their client’s behalf. The agent is putting in their own time, money, and energy to ensure they sell their clients’ homes.

If the property does not sell, the agent is walking away with less time, money, and energy than they could have spent working on other deals. The seller still has their home and is not out of any money or time. This is also one of the better reasoning points for the value agents bring to the table to For Sale By Owners (FSBOs). When someone tries selling their house for themselves, they realize how much really goes into it.

Photo by Conor Samuel on Unsplash

Motivation to Help Their Clients Get the Most for Their Homes

Listing agents’ income is based on the properties they are selling. The commission is a percentage of the sales price, which is different for every deal.

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It motivates agents to know they will make more money if they get their clients more money. Like with other sales and investment fields, the more money they make for their clients, the more they will make for themselves.

Potential Problems With Commission-Based Sales

Although the commission-based structure of real estate agent pay has been mostly successful, there are some drawbacks. One notable downside to commission-based real estate sales is the potential conflict of interest for buyers’ agents. Namely, unethical buyer agents.

Possible Conflict of Interest For Unethical Buyer Agents

Like in every other industry, there are always bad apples. It is important to know that just like every other field, they are the exception and not the rule.

In any sales position that pays a commission, unethical salesmen violate their fiduciary duty to their clients. The fiduciary duty is the responsibility to have your client’s best interests at heart. Making ethical choices, and helping them make the best financial decisions.

In real estate, an agent must represent their client’s best interests. It is against state laws for an agent to intentionally go against their client’s best interest in the pursuit of commission.

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An example would be telling a buyer client that they have to offer asking or above asking price to get a property when they know it is overpriced or would sell for less. Pushing a price to increase your commission is unethical and can lead to losing your license and paying damages.

Jobs That Pay Real Estate Agents a Salary

Although most real estate agents are working the traditional agent sales job, there are agents working jobs that pay salaries. Licensed assistants, transaction coordinators, and new agents are all roles that will sometimes pay salaries to agents. In our article Different Career Options in Real Estate, we break down a few more great real estate careers worth pursuing. Some companies such as Zillow specifically hire agents on a salary, but they aren’t the only ones doing it. Check out these companies currently hiring agents on a salary basis.

Licensed Assistant

A licensed assistant in real estate will typically be working for a more experienced agent or a real estate broker. Licensed assistants can perform duties that require state licensing. Tasks include providing professional opinions on property value, showing properties to clients, and sending documents for clients to sign. Oftentimes, a licensed assistant will be paid a base salary of $40,000 to $50,000. In addition to their base salary, they might be receiving quarterly or annual bonuses based on performance.

Transaction Coordinator

Transaction coordinators don’t require licensing in all states, but a licensed agent working as a transaction coordinator will demand a higher salary. The transaction coordinator organizes transaction documents and sends them out to the appropriate parties in the deal.

These employees typically work on a base salary and per-deal bonuses. For example, they might be earning $40,000 per year as their salary with an additional $150 for each deal that they work to coordinate.

Brand New Agent – Shadowing a Mentor

As a brand new agent, it can be scary to jump from a stable job into the uncertainty of a commission-based career as a real estate agent.

By taking a job with a broker that offers mentorship programs for agents, you can reduce the risk that comes with changing careers. You will be learning how to build your own business during this time. After 1-2 years, you shift to full commission and implement the new skills you have been learning from your mentor.

Finding a broker or agent hiring agents on salary can be difficult, but it is possible. The income is usually broken down into salary and per-deal bonuses. Instead of earning a percentage of the sales price on each deal, you are earning a flat fee per deal in addition to your salary. This way you still have an incentive to close more deals, and you can make more than your base salary.

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Matt Moreland
Matt Morelandhttps://www.mattmorelandrealtor.com/
Matt is a real estate agent, investor, and entrepreneur in Texas, where he lives with his wife and three children. When he is not working on The Agent's Archive, he is helping his clients acquire investment properties, guiding new agents as they enter the industry, farming wine grapes, or working on something for his winery. In his free time he enjoys homesteading with his family, hunting, swimming, and backpacking.