How real estate agents get paid (and why it is negotiable)

Yes. Nothing about it is set by law, and no rulebook fixes an amount. There are actually two separate conversations, and they are easy to blur together.

The first is between a seller and the listing agent the seller hires. The second is between a buyer and the buyer's own agent. In addition, a seller may choose to offer something toward the buyer's agent's pay when an offer is made. That is a third negotiation, and it is also optional.

The Texas contract says the same thing in plain words: brokerage compensation is not set by law and is fully negotiable, and each party pays their own broker under a separate written agreement (Paragraph 12B of the TREC resale contract). If anyone tells you a number is simply how it works, ask them where it is written.

That every buyer's agent does the same job. They do not. Some agreements amount to little more than unlocking doors: the agent shows you a house and that is where the service ends.

Full representation is a different job. It means writing your offer in your interest, negotiating the price and the terms, protecting you through inspections, the appraisal and the closing, and bringing you the title company, inspector and lender contacts that keep a deal from falling apart. Two agents can both say they will be your buyer's agent and be describing very different amounts of work.

So do not compare agents by what they charge until you know what each one actually does for it.

Think about a courtroom. If you go to court over something major in your life, you do not use the same attorney as the other side. You get your own representation. A home purchase works the same way.

The listing agent was hired by the seller, is paid by the seller, and owes duties to the seller. If that agent worked against the seller, the seller could take action against their own agent. So if you negotiate directly with the listing agent, the person across the table is legally obligated to look out for the other side.

In Texas, an agent cannot show you homes until you have hired them, and you hire an agent by signing a buyer's representation agreement. Under Occupations Code 1101.563, that written agreement has to be in place before the agent shows you a home. It must state the services, when it ends, whether you may work with other agents, whether the agent represents you, and the amount or rate of compensation and how it is determined. It must also say, in conspicuous language, that broker compensation is not set by law and is fully negotiable. Open houses are excluded from the requirement.

Read the whole agreement, and ask your agent to walk you through it. These six questions are a good start.

Because a lot of hands are in an agent's pocket before the agent is paid. Depending on the agent and how the client arrived, that can include a referral fee to whoever supplied the lead, the brokerage's split, MLS and association dues, insurance, marketing and taxes.

Referral fees deserve a closer look. Most of the big home-search websites, and many lenders, earn their money by selling your inquiry as a lead to an agent or lender who pays for it. Depending on the program, that fee can be a significant share of what the agent earns on the deal. Somebody has usually paid for the introduction, and it is worth knowing that before you decide whom to call.

None of this means an agent is overpaid or underpaid. It means the number on a contract is not the number in the agent's pocket, and that is one more reason the number is worth a conversation.

You and your agent agree on the compensation in your buyer's representation agreement. It is then commonly asked of the seller first, and that too is negotiated. If the seller agrees to contribute, the offer says so, and the contribution is paid at closing and applied toward what you owe your agent. If the seller does not contribute, you owe the amount in your own agreement.

Under the rules that followed the NAR settlement, offers of compensation to buyer's brokers can no longer appear in the MLS, so this conversation now happens openly, usually at the time an offer is made. Texas REALTORS also notes that a buyer's broker may not be paid more, from any source, than the amount or rate in the written buyer agreement.