Chicago Real Estate 101: How Realtors are Paid

Compensation in real estate is poorly understood.On Saturday a woman wanted me to show her a house in Naperville. Even though the house was priced at $750K, I politely declined. The problem was the woman was already working with a Realtor. If I had shown her the house and she wanted it, she probably would have used her Realtor to write the offer. If that offer was accepted and the sale closed, that Realtor would get the commission. I would get nothing. If she used me to write to the offer, their may have been other issues to deal with.

Even many experienced home buyers don’t seem to understand how Realtors are compensated, so I thought I’d shed some light on the subject. The following applies to Chicago area Realtors who work with real estate brokerages (e.g. Baird & Warner, Coldwell Banker, RE/MAX), not real estate developers.

  • Realtors aren’t paid a salary. The only exceptions are some assistants who are paid a salary by the Realtor they work for.
  • Realtors are paid by commission and only when a home sale closes. No sale, no check.
  • The listing brokerage (who’s Realtor represented the seller) is paid a commission by the seller at the closing. The commission was agreed upon when the brokerage and seller signed the listing agreement.
  • The listing brokerage pays a co-op (cooperating) commission to the selling brokerage (who’s Realtor represented the buyer) from the commission they received from the seller. The listing brokerage publishes the co-op commission they will pay when they list the home in the multiple listing system. SIDE NOTE: When I show a home, I give my buyers a copy of the listing with the co-op commission so they will know what Baird & Warner will be paid, if they buy the home.
  • The listing Realtor (who represented the seller) is paid a portion of the listing brokerage’s remaining commission after the closing.
  • The selling Realtor (who represented the buyer) is paid a portion of the selling brokerage’s co-op commission after the closing.
  • Realtors aren’t compensated for their transportation expenses. Our cars, fuel, insurance, and maintenance are all our own expenses.
  • Realtors aren’t compensated for their other expenses. I pay for my cell phone & service, laptop, website, and advertising.

So as a Realtor I’m really a small business. I have no guaranteed income, but as with any business plenty of expenses! ;)

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ABOUT THE AUTHOR

Fran Bailey Fran Bailey is a Realtor who has been quoted in numerous Chicago and national publications. To schedule showings for any listings, get a free market analysis for your home or to contact Fran email her at fran.bailey@bairdwarner.com or call 773.793.4516. Learn More

Comments

  1. Michael says

    Fran, I hope your readers appreciate what a clear, candid and concise explanation you have provided here about agent compensation. I read lots of real estate blogs, and know it doesn’t get any better than this.

    While it was not the purpose of your post, I am curious how agents that work with/for developers get compensated. Perhaps they are salaried?

    -Michael

  2. Fran Bailey says

    Thank you for compliment, Michael!

    Having never worked for a real estate developer, I’m no expert on the subject of their compensation, but the salespeople I’ve talked with have all received at least a base salary.

    There’s one other difference between working with a real estate brokerage vs. a real estate developer. You aren’t required to have a real estate license to work in sales for a developer!

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