How Do Minnesota Realtors Get Paid?

Most people understand that when they go to sell a house and they choose their Realtor – that that Realtor gets a percentage of commission from the sale – but buyers appear to have Realtors that represent them (seemingly for free) – so how do they make their money?

The answer to that is quite simple – Realtors get paid on every transaction.

Here’s how…

We’ll say Steve-Seller is selling his home – and Bonnie-Buyer is the one who wants to buy it.

Steve-Seller has already negotiated a percent commission with his agent at the time he "hired" him (for this example let’s say it’s 6% of the sale price). But Bonnie-Buyer (who made an offer on the house to try to purchase it) has an agent too – who gets paid a portion of that 6% that Steve-Seller is paying his agent.

Here in Minnesota, this amount is usually around 2.7%…

So Bonnie-Buyer’s agent gets 2.7% of Steve-Seller’s agent’s 6%. So essentially – Steve-Seller’s agent actually gets only 3.3% commission at the end of the day (since 6% – 2.7% = 3.3%).

That can seem like a lot of money for a seller to part with (that’s $6,000 for a $100,000 home) but there are many other factors that the general-public never get to see (or hear about) that go into that amount!

For example: The selling-agent pays for (out of his/her own pocket) all fees associated with the following sales/marketing costs:

  • Getting the sign posted in the front yard
  • Photos of the home
  • Creating and printing flyers
  • Keeping the flyers stocked
  • Getting the home on the MLS
  • Any special features like digital-photo frames
  • Neighborhood tours
  • Panoramic views
  • Virtual tours
  • Internet advertising
  • Print advertising
  • Staging consultation
  • Lockbox home warranty
  • Staffing
    any open houses
  • Desk fees

As well as many other variables which can run from a couple hundred to many thousands of dollars – depending on the services included with that agent.

So at the end of the day – if Steve-Seller’s agent gets the 3.3% commission – and he is actually keeping a lot less overall because of his expenses.

The buyer’s agent’s expenses are measured in the gas, time, and a lot of paperwork. In addition – each agent (selling and buying) typically has to pay fees to their brokerage (Re/Max, Edina, Coldwell, Keller Williams, ect. – whoever holds their license) for each transaction – and also to a broker who can take 50% or more of that commission – depending on how the agent got that client.

So at the end of the day – although it might look like being a Realtor might be an easy high-paying – it’s not always as cushy as one might think.

Here’s a brief diagram showing how and where that money travels using our 6% example:

  • Steve-Seller’s agent works for Edina Realty and Bonnie-Buyer’s agent works for Re/Max
  • Steve-Seller 6% » Edina Realty » 2.7% » Re/Max » portion of the 2.7% » Buyer’s Agent
  • Re/Max » portion of the 2.7% » Buyer’s Agent’s Broker
  • Edina Realty » portion of 3.3% » Seller’s Broker
  • Edina Realty » portion of 3.3% » Selling Agent