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Real estate agents earn their money by commission: When a property sells, they get paid, usually 4 to 7 percent of the purchase price. If a property fails to sell, the agent doesn't get paid - no matter how much time and money she's invested in showing and advertising the home.
The seller usually pays the agent's commission from the proceeds of the home's sale. Of course, sellers are aware of this and take the commission into account when they determine their asking price and decide whether to accept an offer. If you use a buyer's agent, he and the seller's agent split the commission (each side may get half, or the percentages may vary somewhat).
Here's an example of how buyer's and seller's agents typically get paid. Suppose you buy a house for $250,000 and the seller pays a 6 percent commission. In this case, the commission works out to $15,000. The listing agent and your agent split that commission down the middle, each earning $7,500. Each will probably pay a percentage of the individual commission to his broker, up to 50 percent - in this example, that's $3,750.
The commission split between agent and broker varies depending on the agent's experience. For a new agent without much of a track record, the split may be 50/50 with the broker (his boss), while an experienced agent who generates lots of business can get a much sweeter deal, keeping 70 to 80 percent of the commission.
Sounds like easy money, doesn't it? Well...keep in mind that agents do a lot of work behind the scenes. On average, for each hour your agent spends with you, she's putting in a full, eight-hour workday doing tasks you don't see: making phone calls, checking listings, screening homes, setting up tours, filling out paperwork, coordinating with others on your team, and more.
Some buyer's agents charge their clients a retainer, which may or may not be refunded if the agent fails to help you buy a home.
