How Do Real Estate Agents Make Money

Dec 21, 2022

When you are working with a customer to buy or sell a home in Alabama, the process can be overwhelming, especially for first-time agents, buyers, and sellers. You may be wondering how you will be paid after the transaction.

A real estate agent in Alabama is paid through commission, but what is commission, and who pays it? What is the commission price based on? Where does our Title Company in Birmingham fit into all of this? Let’s take a deep dive into who pays what during the home-buying process.

How Do Real Estate Agents Make Money

Rather than being paid a salary or hourly for their work, real estate agents in Alabama are paid a commission only when a deal closes.

Some agents and companies will advertise their services for a flat fee, but most work off of commission based on the home’s sale price. The exact percentage varies, but a 6% commission is usually standard — 3% for the buyer’s agent and 3% for the seller’s agent.

Since agents are only paid when a deal closes, a lot of time passes while the buyer searches for the perfect fit or the seller finds the best offer for their home. An agent can put in a lot of work during that time without seeing a paycheck.

Who Pays the Commission?

It’s usually the seller of the home who pays the commission. Meaning as a buyer, it’s usually completely free to use an agent. Generally, at the closing table, the agents’ commissions are taken from the profits of the seller. As a seller, generally, you’ll bring no cash to closing to pay for real estate commissions.

Title companies like Heights Title in Birmingham will set up escrow accounts to hold all funds from a real estate transaction and make sure money is given to the appropriate people after closing is complete.

What Services Does a Commission Cover for the Buyer or Seller?

While it certainly is an option to go through the process without an agent, using one is recommended. If you’re selling a home, agents provide a wide array of services like marketing your listing, helping you price it appropriately, holding open houses, and sometimes even finding the perfect buyers.

Agents can help you get top dollar for your home. Recent figures show that homes using an agent sold for an average of $330,000 compared to $225,000 for “For Sale by Owner” properties. That’s a difference of $105,000!!! A real estate professional assisted 86% of sellers in selling their homes in 2022 — and we can see why.

Other Important Real Estate Commission Info

All of the agent’s commission details should be outlined in the listing agreement — the contract signed when agreeing to sell a home. The listing agreement also specifies how long the agent will represent you. Most deals are for 90 to 120 days.

Real estate commissions may also vary depending on the type of property. Commissions for lots may be higher due to the higher cost of marketing a vacant piece of land. New construction homes may also have different structures than existing homes.

Heights Title: Your Birmingham, Alabama Real Estate Partner

The experts at Heights Title are your real estate partners in closing a deal. You can rest easy knowing that our Title Company in Birmingham is dedicated to your client’s transaction and your success as a real estate agent in Alabama.