If you're in the market to buy or sell a home, odds are you'll work with a real estate agent to help you through the process. Most real estate agents are paid for their services through commissions that are based on a percentage of the property's selling price.
How much money agents make each year depends on the number of transactions they complete, the commissions they bring in, and the split with their sponsoring broker. Here's a rundown of how real estate agents get paid.
Key Takeaways
- Most real estate agents are paid through commissions.
- A single commission is usually split four ways—between the agent and the broker for the seller and the agent and the broker for the buyer.
- The commission split depends on the agreements the agents have with their sponsoring brokers.
- The commission is paid from the proceeds of the sale before the seller gets their money.
Real Estate Commissions
Most real estate agents make money through commissions based on a percentage of a property's selling price. (Commissions can also be flat fees, but that is much less common.) Agents work under real estate brokers, and the commissions are paid directly to the brokers. Given events in 2024, discussed below, there could be significant changes as the 2020s develop in the way agents are paid.
Real Estate Agent vs. Broker vs. Realtor
First, let's address the basics of a real estate deal. The relationship between agents and brokers helps explain how real estate agents are paid.
Real estate agents are salespeople licensed to work under a designated broker who ensures agents follow state and national real estate laws. Agents can't work independently and are prohibited from receiving commissions directly from their clients.
Brokers can work independently and hire real estate agents as their employees. Each real estate office has one designated broker. All commissions must be paid directly to a broker, who splits the commission with any agents involved in the transaction.
Both real estate agents and brokers can have the title of realtor if they are members of the National Association of Realtors (NAR) and follow its code of ethics.
How Real Estate Commissions Work
When a property is put on the market, the seller and the listing broker sign a listing agreement, a contract detailingthe terms of the listing, including the broker's compensation—usually a commission. It's important to note that the commission has always been negotiable. It's a violation of federal antitrust law for members of the real estate profession to try, however subtly, to impose uniform commission rates.
That said, it's long been contended that they weren't really negotiable. Commissions have historically ranged between 5% and 6% of the final sale price, though that can change based on market conditions. However, a 2024 legal settlement could drastically change the typical commissions American homeowners paid.
Legal Challenge in 2024 and Why It Matters
For decades, the standard real estate commission in the U.S. has hovered around 5-6% of a home's sale price, typically split between the buyer's and seller's agents. However, the U.S. Department of Justice (DOJ) has argued that this structure, championed by the National Association of Realtors (NAR), artificially inflates fees and hinders competition.
The DOJ argued that by requiring home sellers to pay the buyer's agent commission, NAR, and affiliated brokerages effectively eliminated incentives for agents to compete on price, resulting in higher consumer costs. Sellers would advertise the commission they were willing to pay the buyer's agent on multiple listing services (MLS) databases. As such, buyer's agents may have been more inclined to steer clients toward properties offering them higher compensation.
“Real estate commissions in the United States greatly exceed those in any other developed economy,” said Assistant Attorney General Jonathan Kanter of the DOJ's antitrust division. The NAR has pushed back hard on any changes, though that changed in the fall of 2023 when a federal jury found the NAR and several large brokerages guilty of violating antitrust laws. The jury determined they conspired to maintain a commission structure that required home sellers to pay buyer agent commissions, reducing competition and inflating costs. The damages award; $1.8 billion, was staggering but could have tripled under U.S. antitrust law.
Facing this verdict and seller lawsuits, the NAR agreed six months later to settle on the condition that it end the practice. As we've reported, experts expect significant changes in how real estate commissions are structured and paid. Under the settlement, sellers can no longer advertise the commission they will pay the buyer's agent on MLS databases. The parties will continue to negotiate commissions despite this shift in advertising practices.
If commissions go down as they anticipate, sellers should save. A seller who once paid a 5% commission on a $500,000 home would now pay $25,000. With the new rules, sellers may only pay their own agents or pay a lower amount to the buyer's agent.
Buyers' agents could then turn to their clients to make up for what's expected to be lost from sellers lowering or eliminating their commissions to these agents. Some might bill on hourly rates, charge a commission, charge flat fees, or some combination. This doesn't shift the cost of the buyer's agent to the buyer since that's already typically accounted for in the real estate price. But it will now be more explicit upfront what those costs will be.
Here's what hasn't changed:
- Sellers will still negotiate the overall commission rate with their listing agent.
- The listing agent will determine the split with the buyer's agent's brokerage based on their agreements.
- Commission structures and regulations vary across different states and jurisdictions.
- Buyers and sellers should familiarize themselves with their area's specific real estate laws and practices to understand the commission landscape and associated costs.
The latter point is crucial. Buyer agents were around but became widespread in the 1990s as part of consumer-friendly reform. Buyers would then have a representative facing off against the professionals on the seller's side. With buyers' agents now having to compete with one another for their commissions, these are likely to drop significantly. This could mean their level of service declines with their pay. As such, prospective buyers and sellers should familiarize themselves with the specific real estate laws and practices in their area to better understand the commission landscape and associated costs they face.
The NAR settlement could prove transformative. However, the transition may also bring challenges, such as disruptions to established industry practices that potential buyers and sellers might have learned from earlier transactions. While one expects agent services for buyers to lag, this could also mean that these agents emphasize their value proposition to potential clients in a new legal and competitive environment.
How Commissions Are Shared
Real estate commissions are often divided among several people. In a typical real estate transaction, the commission is split four ways:
- Listing agent—the agent who took the listing from the seller
- Listing broker—the broker who employs the listing agent for the seller
- Buyer's agent—the agent who represents the buyer
- Buyer's agent's broker—the broker who employs the buyer's agent
Example of a Real Estate Commission
Here's an example of how a real estate agent is paid a percentage of the commission the listing broker earns on the transaction.
Suppose an agent takes a listing on a $200,000 house at a commission rate of 6%. This equals a total commission of $12,000. If the house sells for the asking price, the listing broker and the buyer's agent's broker each get 50% of the commission, or $6,000 each ($200,000 sales price ×0.06 commission ÷2). The brokers then split their commissions with their agents.
A common commission split gives 60% to the agent and 40% to the broker, but the split could be 50/50, 60/40, 70/30, or whatever ratio the agent and the broker agree on. More experienced and top-producing agents tend to receive higher commissions.
In a 60/40 split, each agent in our example receives $3,600 ($6,000 × 0.6), and each broker keeps $2,400 ($6,000 × 0.4). The final commission breakdown would be as follows:
- Listing agent: $3,600
- Listing broker: $2,400
- Buyer's agent: $3,600
- Buyer's agent's broker: $2,400
There are cases in which commissions are split among fewer parties. For instance, if a broker lists a property and finds a buyer, that broker would keep the full 6% commission (or whatever the rate in the listing agreement is). Or, if a listing agent sells the property by acting as an agent for both the seller and the buyer, that agent would split the total commission with their sponsoring broker. If the commission is $12,000, as in the previous example, the broker keeps $4,800, and the agent receives $7,200 (assuming the same 60/40 split).
Of course, as in other professions, an agent's earnings are eroded by taxes and business expenses. Federal, state, and self-employment taxes, as well as the cost of doing business—insurance, dues, MLS fees, and advertising—take sizable chunks of the agent's commissions.
How Much Do Real Estate Agents Make?
The median salary for real estate agents is $54,300, according to the U.S. Bureau of Labor Statistics (BLS). For brokers, the median annual salary was $63,060.
Of course, real estate agents and brokers can make much more than that. The top 10% of agents earned more than $113,320, while the top 10% of brokers made $160,980. This data is as of mid-2024, with the BLS reporting March 2023 data.
Commissions When the Sale Doesn't Close
Commissions are generally paid only when a transaction settles. There are instances, however, when a seller is still liable for the broker's commission even if the sale doesn't close—and often the terms specifying this requirement are in the listing agreement. This is rare, but it could happen. For example, if the broker has an offer from a buyer who is ready and able to make the purchase, but the seller does any of the following:
- Changes their mind and refuses to sell
- Has a spouse who refuses to sign the deed (if that spouse signed the listing agreement)
- Has a title with uncorrected defects
- Commits fraud related to the transaction
- Cannot deliver possession to the buyer within a reasonable time
- Insists on terms not listed in the listing agreement
- Mutually agrees to cancel the transaction with the buyer
Listing agreements vary and each is individually negotiated. They may include contingencies that require a seller to pay the commission even if the home doesn’t sell.
Other Compensation Models
Although the most common pay model for real estate agents is a percentage of the commission, some agents employed by brokers are paid a salary. Redfin—an online property search site that employs a staff of full-service real estate agents—is one example. Their agents are paid a salary plus a bonus based on the price of every home sale they close.
Another non-commission method of payment for real estate agents is through referral fees. Agents can earn these by suggesting clients to other agents or real estate professionals for services such as property management, financing, or relocation assistance. Referral fees are typically negotiated between the referring agent and the receiving agent, and there may be an exclusivity agreement between the two (i.e., a real estate agent may only suggest certain vendors).
Given the 2024 NAR settlement, we're likely to see new and different kinds of compensation models come on board for agents.
When Are Real Estate Fees Paid?
Real estate commissions are deducted from the sale proceeds at closing and paid directly to the brokers, who split them with the agents involved.
Do Real Estate Agents Get a Base Salary?
Most real estate agents are paid on a commission-only basis. But certain agents—including those who are employed by companies like Redfin—get a base salary plus bonuses.
Are You Supposed to Pay Your Real Estate Agent?
Consumers don't pay real estate agents directly. Brokers receive the commission, which is taken from the total proceeds of the sale. This amount is then split between the broker and the agent.
Do Real Estate Agents Get Paid Weekly?
Most real estate agents do not get paid weekly or even biweekly. Instead, they work without pay in anticipation of earning commissions on the sales they make. These commissions are paid at closing and split between the brokers and the agents.
The Bottom Line
Most real estate agents make money through commissions that are paid directly to brokers when transactions are settled. A single commission is typically split several ways among the listing agent, the listing broker, the buyer's agent, and the buyer's agent's broker. The commission split a particular agent receives depends on the agreement the agent has with their sponsoring broker.
Real estate agent compensation is undergoing significant changes in the mid-2020s because of the DOJ's antitrust actions and the NAR's 2024 settlements. As the dust settles, both industry participants and consumers will need to navigate new compensation structures for real estate agents.
