How Do Real Estate Agents Get Paid and How Much Do They Make?

Real estate agent salaries

Real estate agent salaries aren’t based on a yearly or hourly wage. Instead, most agents make money only after a home has sold.

This income is in the form of a commission, which equates to a percentage of the home’s selling price. So a real estate agent’s salary depends on the sales price of homes where they work.

The National Association of Realtors and Redfin both estimate the average commission charged by agents at 5-6%.

That’s a lot. Zillow reports the median sale price of a U.S. home was just over $287,000 in May of 2021.

A 6% commission on a home selling at $287,000 would equal $17,220. Even after a 50/50 commission split, an agent could earn $8,610 on the home sale.

And, at the high end of the market, the figures must bring tears even to rich people’s eyes. A homeowner who sold a mansion in Manhattan or Beverly Hills worth $50 million would be writing (through those tears) $2.5 million or $3 million commission checks.

But before you decide to launch your new career as an agent, remember that not every real estate professional works in New York or California, and not every real estate transaction includes seven figures.

How much are typical realtor fees?

Realtor fees are typically 6% of the final sale price of a home. The commission is split evenly, with 3% going to the listing agent and their broker, and 3% going to the buyer’s agent and their broker.

The home seller pays both the buyer’s agent and the listing agent’s commission.

How does this actually shake out? On the sale of a $400,000 home, each agent makes about $12,000.

*On the sale of a $400,000 home.
PercentageDollar amount*
Buyer’s agent commission3%$12,000
Listing agent commission3%$12,000
Total commission paid by seller6%$24,000

» MORE: How does a 3% real estate commission work? 

Real estate commission splits

If a realtor works for a brokerage (RE/MAX or Coldwell Banker, for example), they don’t get to keep their full commission. Typically, agents split their commission 50/50 with their brokerage.

A 50/50 commission split is common, but some brokerages may structure splits differently. Sometimes, splits may favor the agent more depending on their tenure with the brokerage (as in more experienced agents share less with the brokerage). 

Commission splits help cover shared brokerage expenses, like advertising, licenses for technology tools, and office equipment. Because of brokerage commission splits, your agent makes much less than what you’ve paid in realtor fees.

Commission split on a $400,000 home

*Assuming a $400,000 home sale with a 3% commission rate.
Agent’s commission$12,000
50/50 brokerage split$6,000
Agent’s final pay*$6,000

» MORE: What’s a real estate broker?

Realtor fee calculator

Use this realtor fee calculator to estimate how much you’ll pay in real estate  commission when you sell your home.

Simply enter your estimated home sale price along with the percentage you’ll pay to each agent. Remember, sellers are responsible for covering both the listing agent and buyer’s agent fees.

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Andrew Te andrew

 Andrew has 7+ years of experien

Andrew Te

andrew

Andrew has 7+ years of experience in Real Estate and working with Real Estate Agents. He is passionate about the housing market and solving problems. View all posts by Andrew Te

Dual Agency

Agents on both sides of a deal have a fiduciary responsibility to their clients. This means agents must disclose known issues about a property and negotiate in good faith. As such, a buyer’s agent must act in the best interests of their customers just as a seller’s agent must represent the best interests of their clients. There may be a time when a listing agent also represents a buyer (for the same property), and this is known as dual agency.

Because dual agency makes it difficult to negotiate and represent both parties of a real estate deal, several states prohibit the practice. The State of California allows dual agency, but only if the agent or broker fully discloses it to the buyer and seller. To say the least, this becomes a precarious situation.

Real estate agent fees: Standard transactions

Now that we’ve looked at what’s included in real estate agent fees and how they’re determined, let’s dive into the differences between standard and non-standard transactions.

Standard transactions refer to real estate deals where the buyer’s agent and the listing agent split the commission 50/50.

Now, let’s talk about non-standard transactions.

Types of real estate agents

You may hear the terms ‘real estate agent,’ ‘Realtor,’ or ‘brroker’ used interchangeably. But there are some key differences between these professionals.

Real estate agent vs. Realtor

All Realtors are real estate agents or brokers. But not all real estate agents or brokers are Realtors.

Realtors are members of the National Association of Realtors (NAR). And the Realtor trademark is intended to stop agents who aren’t Realtors from claiming they are.

The NAR would say, with some justification, that its members have greater expertise (they have to pass additional exams) and are held to higher professional standards than other real estate agents.

Real estate agent vs. broker

A real estate agentis someone who has passed his or her state’s relevant exams and who’s been licensed to practice as an agent.

A real estate license is the lowest level of qualification for people to facilitate the buying and selling of homes.

Each state sets its own exam standards and continuing education requirements. It’s easier to get a licence in some states than others.

A real estate broker has gone the extra mile and taken additional exams. So he or she should — theoretically — have greater knowledge and expertise than an agent.

And a broker is more likely to have a senior post in a real estate brokerage, often managing other agents’ activities.

The Bureau of Labor Statistics reports the national median income of a real estate agent was $51,220 in 2020.

By contrast, the BLS also found real estate brokers tend to make about $10,000 a year more than sales agents.

What do realtor fees cover?

Realtor fees compensate agents for the time they devote to your transaction.

For buyers, this typically includes the following services:

  • 🔎 Identifying properties that meet your needs and budget
  • 🏠 Scheduling showings and attending open houses
  • 📝 Writing and submitting offers
  • 🤝 Negotiating deals and facilitating closing

For sellers, realtor fees typically cover services such as:

  • 💲 Researching comparative sales and developing a pricing strategy
  • 🎀 Assisting in preparing the home for sale
  • 💻 Listing the property on the multiple listing service (MLS)
  • 📣 Marketing your property listing
  • 🤝 Negotiating deals and facilitating closing

Realtor fees also typically cover some basic expenses agents may incur as they guide you through the home buying or selling process. This includes paying for things like:

  • Professional home photography
  • Printed flyers
  • Home staging
  • Drone photography
  • Video tours

Always check with your agent upfront to learn what services they do and don’t include in their standard fees so you’re on the same page.

Is Hiring an Agent Worth the Cost?

Okay, now let’s answer the question you’ve been waiting for: Are real estate agents worth the cost? Well, as we covered earlier, sellers cover the commission for both agents. So, buyers have nothing to lose! But how about you sellers out there? If you’re considering not using an agent or going the “For Sale by Owner” (FSBO) route, first take a look at the stats. The latest data shows the typical FSBO home sold for $217,000 compared to $242,300 when sold by an agent.2 That’s a $25,300 difference!

If you’re considering not using an agent or going the “For Sale by Owner” (FSBO) route, first take a look at the stats. The latest data shows the typical FSBO home sold for $217,000 compared to $242,300 when sold by an agent.2

Sure, around $16,000 of that would go toward the agent commissions. But that’s still almost $50,000 more in your pocket than you would have gained by selling solo! And, even if that difference ($65,000) is only half right in your particular market, you’d still potentially come out ahead by $18,500 by using an agent.

What Does a Real Estate Commission Cover?

A real estate commission covers all the work that goes into buying and selling property. Trust us, a great agent does a lot to help you buy or sell a house. A seller’s agent shows you how to stage your home for buyers and—since they know what similar homes in your area are selling for—they help you price it right. They also put your home in front of a ton of buyers using a multiple listing service (MLS), social media and ads. This helps you get your home sold quickly and for top dollar.

Meanwhile, a buyer’s agent studies home listings that match your needs and price range. They help you arrange a home inspectionand oversee any necessary repairs or contract adjustments so you don’t get a bad deal. They do everything they can to help you find and purchase a dream home that’s within your budget.

Beyond those differences, both types of agents give you the confidence that a real estate professional is on your side, and they offer many similar services. For example, both agents:

  • Meet with you in person to understand your needs and answer any questions you have

  • Educate you on current market conditions

  • Give you access to an MLS—which offers more options to buyers and visibility to sellers

  • Refer other needed pros (mortgage lenders, photographers, inspectors, attorneys)

  • Schedule home showings

  • Negotiate the best price for you

  • Represent you throughout the sale and act in your best interest

  • Help you through the mountain of paperwork

A good agent tackles these tasks day in and day out. Their experience helps you avoid rookie mistakes. Sure, you can try to handle all these things by yourself. But, when you’re sitting in the hot seat of a real estate transaction, you’ll quickly realize that agents are worth their weight in gold!

How Much Is a Real Estate Commission?

Real estate commissions are always negotiable—otherwise, agents would be in violation of state and federal antitrust laws—so they vary. Though 6% has traditionally been regarded as the standard fee, commissions typically fall between 4% and 5% nowadays. The average real estate commission in 2020 was 4.94%, according to research firm RealTrends.

Keep in mind that the commission represents a percentage of the home's selling price—so the exact fee won't be known until an offer is accepted and the house is sold.

What If I Can’t Afford Closing Costs as a Seller?

If you can’t afford closing costs, you canask your lender or the buyer to help cover some of the cost. On the other hand, you can apply for Down Payment Assistance or a Closing Cost Assistance Grant.

Closing Cost Assistance Grants are specifically available for the purpose of helping low to moderate-income households. To learn more, inquire with a trusted lender for more information. 

If a loan or grant is not an option, consider negotiating with your lender to assist you by lowering your down payment on your next house. 

The money saved in the down payment should be able to cover your closing costs. As a result, you should expect your mortgage costs to increase.

Don’t Break the Bank

Lastly, if you wish to ask the seller if they are willing to pay part of the closing costs, make it clear that the sale agreement is contingent on meeting this condition. 

You may choose to reveal that you do not have the funds for the closing costs and that as a result, have applied for a grant or have spoken with a lender already. However, you’re not required to.

Before facilitating this negotiation, talk to your realtor for advice on how to best move forward. 

Flat-Fee Real Estate

Of course, there are listing agents who work for a flat fee—such as $100 or $500. This can obviously benefit sellers (and ultimately buyers) in terms of cost savings, but the drawback is that these agents may offer limited representation.

A traditional real estate agent will be your partner throughout the entire homebuying or selling process. A seller’s agent will help you stage your home, take professional photos, get your home on a multiple listing service, advertise, schedule and host open houses, and negotiate on your behalf.

Similarly, buyer’s agents will help you determine your must-haves, find the right property, take you to showings, negotiate offers, and recommend other professionals (such as a home inspector).

Flat-fee or discount brokerages may cost less, but you could end up getting what you paid for. Still, there are full-service agents who work for a lower commission or flat fee. If you decide to go this route, be sure to find out ahead of time which services the agent offers to make sure that what you will get matches your expectations.

The bottom line on Realtor® fees

Realtor® fees are a part of home sales everywhere, but homebuyers don’t have much reason to worry.

Still, an awareness of these fees and what they cover can highlight the value-add your agent brings to a transaction. It can also help you navigate any non-standard transactions you may encounter.

Since the seller usually pays real estate commissions, you can spend time looking for other ways to save money. Like real estate agent fees, just about everything in a real estate transaction is negotiable.

Header Image Source: (SpeedKingz / Shutterstock) 

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