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Where Does a REALTOR’s Commission Actually Go?
Where Does a REALTOR’s Commission Go?
When people hear that a home sold for $400,000, it’s easy to assume the REALTOR® just walked away with a huge paycheck.
I hear comments like this all the time:
“Wow! You must have made a fortune on that sale!”
The reality is…that’s almost never how it works.
One of the biggest misconceptions in real estate is that REALTORS® keep the entire commission. In reality, the money is negotiated, divided, and used to cover the many costs of running a real estate business.
Let’s pull back the curtain and take a look at where a REALTOR’s commission actually goes.
First Things First: REALTORS® Only Get Paid if the Transaction Closes
This surprises a lot of people.
Most REALTORS® don’t earn an hourly wage or salary.
We don’t get paid for:
- Showing homes
- Hosting open houses
- Writing offers
- Negotiating contracts
- Coordinating inspections
- Driving across town for showings
- Answering evening and weekend phone calls
- Solving last-minute problems before closing
If a transaction falls apart before closing, the REALTOR® has often invested dozens…or even hundreds…of hours without receiving any compensation.
That’s simply part of the business.
How Commission Works Today
Let’s use a simple example.
Imagine a home sells for $400,000.
When a seller lists their home, they negotiate and agree to a listing fee with their listing brokerage. That fee covers the professional services provided to market and sell the property.
The seller may also choose to offer compensation to a buyer’s broker, but they are not required to do so.
If a seller chooses not to offer buyer broker compensation, or offers less than what a buyer and their agent have agreed to, the buyer can ask the seller to contribute toward that compensation as part of the purchase offer. Just like the purchase price, repairs, or closing costs, buyer agent compensation can be negotiated during the transaction.
Every real estate transaction is unique.
Speaking of common misconceptions, you may also enjoy reading What Actually Stays with the House When You Sell?
Then the Commission Is Divided
Whether the compensation comes from the listing agreement, a negotiated seller concession, the buyer, or a combination of those sources, the money doesn’t simply go straight into one REALTOR®’s bank account.
Instead, the funds are distributed according to the agreements in place.
That often means the money is divided between:
- The listing brokerage
- The listing agent
- The buyer’s brokerage
- The buyer’s agent
Exactly how that distribution looks depends on the transaction and the agreements everyone has in place.
Where Does a REALTOR’s Commission Actually Go?
Let’s imagine a REALTOR®’s brokerage receives $12,000 in compensation from a transaction.
Many people assume that’s what the REALTOR® takes home.
In reality, that’s just the starting point.
Before an agent ever receives a paycheck, that money may be reduced by things like:
- Brokerage split
- Transaction fees
- Franchise or royalty fees (if applicable)
- Errors & Omissions (E&O) insurance
- MLS fees
- Local, state, and national REALTOR® association dues
- Licensing fees
- Continuing education
- Marketing and advertising
- Professional photography and videography
- Signs and lockboxes
- CRM and technology subscriptions
- Fuel and vehicle expenses
- Office expenses
- Self-employment taxes
- Health insurance
- Retirement savings
Most REALTORS® are independent contractors, meaning they pay these expenses themselves.
Like any small business owner, they’re responsible for investing back into their business so they can continue serving clients.
REALTORS® Don’t Have a Guaranteed Paycheck
Unlike many professions, REALTORS® don’t receive:
- Paid vacations
- Sick leave
- Employer-sponsored retirement plans
- Guaranteed weekly paychecks
Some months include several closings.
Other months may include none, even though the work never stopped.
That’s why REALTORS® spend so much time building relationships, continuing their education, marketing their business, and serving clients long before payday ever arrives.
So…Is It Worth It?
Absolutely.
Helping first-time buyers get the keys to their first home.
Helping growing families find more space.
Helping empty nesters start their next chapter.
Those moments are why so many REALTORS® love what they do.
Behind every successful closing are weeks…or sometimes months…of work that most people never see.
The Bottom Line
The next time you hear someone say,
“That REALTOR® made a fortune on one sale.”
Remember there’s much more happening behind the scenes.
Before a REALTOR® ever sees a paycheck, the compensation has often been negotiated, divided according to multiple agreements, and used to cover the many costs of operating a real estate business.
And perhaps the biggest misconception of all?
REALTORS® don’t get paid when they start working.
Most only get paid if they successfully make it to the closing table.
Have Questions?
Real estate has changed over the past few years, and there’s a lot of misinformation floating around.
If you have questions about how commissions work, buyer agreements, or the home buying and selling process, we’re always happy to help.
The more you understand, the more confident you’ll feel when it’s time to make your next move.
If you’re preparing to sell, you may also enjoy our article on Should You Renovate Before Selling Your Home?
So, Where Does a REALTOR’s Commission Go? “It depends.”
Why Price Per Square Foot Can Be One of the Most Misleading Numbers in Real Estate
Price Per Square Foot – The Most Misunderstood Number In Real Estate
Helping buyers and sellers across East Alabama understand real estate, one question at a time.
“What’s the price per square foot in my neighborhood?”
As Realtors®, this is one of the most common questions we get from homeowners.
It’s an understandable question. Price per square foot is easy to find online, it’s often mentioned in market reports, and it seems like a quick way to estimate what a home might be worth.
In fact, many sellers become attached to that number before we ever sit down to discuss pricing.
The problem is that relying too heavily on price per square foot can create unrealistic expectations. In today’s market, pricing a home based on a simple calculation instead of its true market value can lead to fewer showings, lower offers, and ultimately more time on the market.
Before we talk about why, it’s important to understand what price per square foot actually tells us…and what it doesn’t.
What Is Price Per Square Foot?
Price per square foot is exactly what it sounds like. You take the sale price of a home and divide it by its finished square footage.
For example:
- A home that sells for $400,000 with 2,000 square feet sold for $200 per square foot.
It’s a useful statistic because it helps identify general trends in a neighborhood or local market.
The key word, however, is general.
It’s a market indicator, not a pricing formula.
No Two Homes Are Truly the Same
Imagine two homes that are both 2,000 square feet.
One backs up to a golf course.
The other sits on a busy road.
One has a beautifully renovated kitchen with custom cabinetry and quartz countertops.
The other still has its original finishes from twenty years ago.
One has a screened porch overlooking a private backyard.
The other has no outdoor living space at all.
Even though they’re exactly the same size, they are unlikely to sell for the same price.
Square footage is only one piece of the puzzle.
Smaller Homes Often Have a Higher Price Per Square Foot
This surprises many homeowners.
A 1,400-square-foot home may actually sell for a higher price per square foot than a 3,200-square-foot home in the very same neighborhood.
Why?
Because certain parts of every home carry significant value regardless of size.
Think about the kitchen.
Bathrooms.
The garage.
The roof.
The HVAC system.
The lot itself.
Those costs don’t double simply because the house is larger. Since those fixed-value features are spread across fewer square feet in a smaller home, the price per square foot is often higher.
That’s completely normal.
Buyers Don’t Shop With Calculators (Well, Most buyers anyway)
When buyers walk through a home, they aren’t thinking:
“This feels like exactly $212 per square foot.”
Instead, they’re asking themselves questions like:
- Can I picture my family living here?
- Is the kitchen updated?
- Do I love the backyard?
- Is there enough storage?
- Does the layout work for our lifestyle?
- Is this home worth the asking price compared to others I’ve seen?
Those emotional and practical decisions influence value far more than a simple mathematical formula.
Location Can Change Everything
You’ve probably heard the phrase:
Location, location, location.
There’s a reason it’s still one of the biggest factors in real estate.
Two nearly identical homes can have very different values simply because of where they’re located.
Things like:
- Neighborhood demand
- School districts
- Privacy
- Lot size
- Views
- Nearby amenities
- Traffic patterns
- Future development
all influence what buyers are willing to pay.
That’s true whether the home is in Auburn, Opelika, or one of the many wonderful communities throughout East Alabama.
Appraisers Don’t Use Price Per Square Foot Alone
One of the biggest misconceptions is that appraisers determine value by multiplying square footage by a dollar amount.
They don’t.
Professional appraisers compare similar homes that have recently sold and then make adjustments for differences such as:
- Size
- Age
- Condition
- Updates
- Lot characteristics
- Garages
- Pools
- Outdoor living spaces
- Overall appeal
This process creates a much more accurate picture of a home’s market value than a simple price-per-square-foot calculation ever could.
So… Is Price Per Square Foot Useless?
Not at all.
It’s actually a valuable tool when it’s used correctly.
Real estate professionals use price per square foot to identify market trends and compare similar properties.
The problem comes when it’s treated as the only factor in determining value.
Every home has its own story.
Every neighborhood is different.
Every buyer values different features.
That’s why pricing a home is both a science and an art.
The Bottom Line
Pricing a home isn’t about finding a magic number and multiplying it by the square footage.
It’s about understanding how buyers see your home in today’s market.
A well-priced home often attracts more interest, generates stronger offers, and creates a smoother selling experience.
On the other hand, pricing too high because of an oversimplified price-per-square-foot calculation can cause a home to sit on the market longer than necessary. As time passes, buyers naturally begin to wonder why it hasn’t sold, and that can make achieving your desired price even more challenging.
That’s why I prepare a Comparative Market Analysis (CMA) for every seller. A CMA looks beyond square footage to evaluate the things buyers actually pay for—location, condition, updates, amenities, lot characteristics, and recent comparable sales.
Our goal isn’t simply to tell you what your home is worth.
Our goal is to help you price it strategically so you can attract the right buyers and maximize your opportunity in today’s market.
Have a question you’d like us to explain?
Send it our way! Your question could inspire a future edition of Real Estate Explained. Whether you’re buying, selling, investing, or simply curious about the market in East Alabama, we’re here to help.
