Everything You Wanted to Know How About Real Estate Agents Work

But Didn't Know Who to Ask

Female real estate agent and woman in front of house for sale
••• Leland Bobbe/Photodisc/Getty Images

A real estate agent can make or break your deal, so you owe it yourself and to your financial future to understand how real estate agents work. You should understand the answers to several questions before you start looking for an agent to represent you, or decide to buy or sell your property on your own. Is dual agency or single agency the best deal for you? Who pays the agent's commission?

Key Takeaways

  • You're not legally bound to your agent unless you've signed a buyer's agent agreement, but you should then honor that agreement.
  • Typically, sellers pay commissions of around 6% to their listing brokers, who then share the money with the buyer’s agent.
  • There are different types of listing agreements based on pay structure; in open listings, the agent is paid only if they sell the property. 
  • To find the right agent, ask for referrals and check with your state's Department of Real Estate to make sure the agent's license is active.

Buying or Selling Without an Agent

There are numerous pros and cons to working with or without an agent when you're trying to buy or sell a home. The key factor here is that agents are professionals. You're most likely putting yourself at a disadvantage if you're not also a real estate professional and you're not knowledgeable when it comes to the real estate market.

Berkshire Hathaway Home Services Nevada indicates that "for sale by owner" homes sold for an average of $65,000 less over a three-year period ending in 2019. The overwhelming majority of buyers—89%—worked with agents in the same time period.

You might save yourself in the neighborhood of 6% in commissions if take the "for sale by owner" approach, but you'll work hard for those savings. You're not just showing your home to prospective buyers. You'll be marketing it and negotiating with those buyers, and you'll be responsible for drafting and handling all associated paperwork without error.

Consumer Reports warns that it's not an undertaking for the faint of heart.

Realtors vs. Agents

A Realtor is an agent or broker who is also a member of the National Association of Realtors (NAR). This is quite a distinction because NAR holds its members to high professional and ethical standards. An agent without this credential must only be licensed by the state in which they work.

All agents must work for and under a licensed broker, regardless of whether they're Realtors.

Single vs. Dual Agency

Dual agency can be tricky. You'll be working with an agent who's representing both you and the other party in the home sale transaction—both buyer and seller. It can be virtually impossible for an agent to get the best possible deal for both clients. There's a clear conflict here, and the arrangement isn't even legal in all states.

Single agency involves working with just one agent whose only concern is what's best for you.

Can You Call Other Agents?

You're not legally bound to your agent as a buyer unless you've signed a buyer's agent agreement, and you should honor that agreement if you've done so.

Real estate agents don't get regular paychecks. They're paid a commission of the sale when a deal is consummated. It would be unfair to ask them to spend their time helping you find a home, then call someone else in midstream—particularly if you actually buy a home with that second agent.

You can always ask the agent you've signed with to cancel the contract if you're unhappy with their services and just want to move on.

About Real Estate Commissions

How agents get paid and whether it's insulting to try to negotiate a commission are two of the most often asked questions from buyers and sellers.

Buyers are rarely responsible for paying commissions. They're paid by sellers, and they're a percentage of the sales price. Sellers pay commissions to their listing brokers, who then share the money with the buyer's agent. The overall commission before any sharing is usually around 6%, but you can certainly try to negotiate it down.

Types of Listing Agreements

There are three basic types of listing agreements:

  • An open listing is fairly common. The listing agent or broker is the seller's representative, and the seller agrees to pay commission only if that particular agent or broker ends up selling the property.
  • The broker or agent gets paid regardless of whether their efforts result in bringing a buyer to the table when you sign an exclusive right-to-sell agreement.
  • An exclusive agency listing is similar to a right-to-sell listing except it allows that the seller does not have to pay a commission if the seller's efforts solely result in a sale.

Finding the Right Agent for You

Few agents will acknowledge that they get more than half their deals simply because they're in the right place at the right time, not necessarily because they're competent. You can hunt up those who are competent—or, better than that, excellent at what they do—by asking for referrals. Then do a little research.

Agents are like any other profession. Some are good, some are bad, and some are in between.

Check with your state's Department of Real Estate to make sure the agent's license is active and in good standing. Run the name by your local small business administration. Check to see how many listings the agent currently has if you're selling. And finally, trust your gut.