Content of the material
- Real Estate Commission Basics
- Who Pays a Real Estate Agent’s Commission
- Broker Commission Split
- When Commission is Paid
- What Do Closing Costs Include?
- How much do real estate agents make per hour?
- Example of a Real Estate Commission
- Types of real estate agents
- Real estate agent vs. Realtor
- Real estate agent vs. broker
- Do Real Estate Agents Get Paid Weekly?
- Are Realtors overpaid?
- Average real estate commissions by state
- How much does a realtor make on a $100,000 sale?
- How does a realtor get paid on a new construction?
- How the real estate agent commission is set
- What Does a Real Estate Commission Cover?
- How Real Estate Agent Commission Is Split
- Dual Agency
- How commissions have changed over the years
- What About Broker Compensation?
Real Estate Commission Basics
Who Pays a Real Estate Agent’s Commission
The seller typically pays 5-6% of the sales price for realtor services. The listing agent gets half and the buyer agent gets the other half. However, it should be noted that sellers don’t pay agents directly since it’s prohibited.
Instead, a commission payment is sent to the listing agent’s broker. The listing broker will then send the buyer’s brokerage their portion of the commission. Each broker will then give the agent their split minus any fees.
So technically, the agent’s commission is paid by their broker.
Broker Commission Split
When you sign on with a broker, one of the key considerations is the commission split. Real estate agents are independent professionals, but they must work in connection with a licensed brokerage that is held to high business standards. It’s part of the checks and balances that ensures agents are competent and consumers are protected.
In return for operating legally under the brokerage, agents must split the commission they earn helping a client sell or purchase a home. When your broker receives the commission funds they will deduct their portion before sending you the rest.
Let’s imagine you’re a new real estate agent that has a 50/50 commission split, which is fairly standard. A few months into being licensed you close your first sale. The commission is 5%, and the sale price is $300,000.
That means the total commission is $15,000. Each brokerage receives $7,500. Your broker will then keep their half and give you $3,750.
There’s a huge range of broker commission splits from 30/70 to 90/10. Every brokerage has their own system and financial considerations. Often the commission split comes down to two things: the amount in sales that an agent closes and the level of service that the brokerage provides. The more an agent sells the higher the commission split should be in their favor.
When Commission is Paid
Instead of getting paid for the hours that you put in as you work with a seller or buyer, you’ll get one lump sum payment after settlement. As soon as the close and funding are completed the commission fees will be released. Today’s real estate agents are lucky that direct deposit allows for immediate payment.
Just keep in mind it could take time to close your first deal. And some months will be much busier than others. It’s important to manage your finances accordingly to balance out the highs and lows.
What Do Closing Costs Include?
The closing costs are normally between 8-10% of the house’s purchase price.
2-4% is paid for title insurance, taxes, appraisal fees, deed recording fees, loan origination fees, attorney fees, and discount points. The other roughly 6% makes up the commission which is divided among the real estate agents involved.
There are other smaller fees within the closing cost as well. These should be accounted for in the final contract. If you read the final contract carefully to know what the costs are (and why they are priced accordingly) it will benefit you greatly.
How much do real estate agents make per hour?
The national average hourly earnings for real estate agents is $29.56, according to the U.S. Bureau of Labor Statistics. Agents aren’t paid by the hour, but this calculation divides the national average ($61,480) by 2,080 hours (full time).
As a home buyer or seller, you’ll never be handed a bill for the hours that your agent puts in during your sale — they’re compensated for their time with commission once the sale closes.
Example of a Real Estate Commission
Here's an example of how a real estate agent is paid a percentage of the commission that the listing broker earns on the transaction.
Say 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 x 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 is agreed by the agent and the broker. It is common for more experienced and top-producing agents to receive a larger percentage of the commission.
In a 60/40 split, each agent in our example receives $3,600 ($6,000 X 0.6) and each broker keeps $2,400 ($6,000 X 0.4). The final commission breakdown would be:
- Listing agent: $3,600
- Listing broker: $2,400
- Buyer's agent: $3,600
- Buyer's agent's broker: $2,400
There are cases, though, 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 agent for both the seller and the buyer, that agent would split the full 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, multiple listing service (MLS) fees, and advertising—end up taking sizable chunks of the agent’s commissions.
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.
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 are paid at closing and split between the brokers and the agents.
Are Realtors overpaid?
Though home sellers may feel that Realtor fees of up to 6 percent are too high, Duffy argues that they’re not high enough. After all, a lot goes into listing a home, such as:
- Performing a comparative market analysis to establish a competitive price
- Arranging for photo shoots, sometimes including aerial shots via drone
- Writing descriptive listing copy to attract interest from other Realtors and potential buyers
- Providing staging guidance
- Showing the property multiple times to prospective buyers
- Hosting open houses on weekends
- Providing yard signage
- Making sure listings are populated on all major property search websites
- Helping the seller review and negotiate buyer offers
When an offer comes in, the listing agent negotiates on behalf of the seller, often presenting one or more counteroffers. And with the volatility of the current market and record low levels of inventory, Realtors frequently deal with multiple potential buyers to help you get the most out of your property.
Average real estate commissions by state
Overall, the national average Realtor commission in 2021 was 5.5 percent, according to data from Clever. In most states, the commission ranged between 5 and 6 percent. But in states like California and New Hampshire, where expensive properties abound, the commission was typically under 5 percent. Find the average commission in your state in the table below:
|State||Average commission rate|
How much does a realtor make on a $100,000 sale? The national average take home pay for a realtor is 1.7% of the sales price of a home. On a $100,000 sale, an agent will make $1,700. How does a realtor get paid on a new construction? Newly built houses are still sold by someone, even if a developer or property management company owns the property. If the property has been listed, in most cases the owner pays their listing agent, who splits their commission with the buyer’s agent.
How the real estate agent commission is set
Realtor Kevin Deselms says the commission percentage is based on several factors. This can include local real estate market conditions.
“But the amount is often based on negotiation between the seller and the listing agent or the agent’s brokerage,” he says.
In other words, the commission is negotiable. And some agents are willing to give discounts, either within the listing agreement or later.
In fact, about three out of five sellers get a discount on their agent’s commission.
“Commission rates have been trending down in recent years,” says real estate broker Matt Buttner.
“This is mostly because of the internet and technology,” he says. “The MLS now automatically syndicates the listing out to real estate websites like Zillow and Realtor.com. So a listing agent’s job is easier.”
Discounts are given for many reasons.
“Say, for example, a client is selling one house and buying another using the same agent. In this case, the agent is more likely to offer a discount,” says real estate attorney and Realtor Bruce Ailion.
“Or say the property is in a hot market and competitively priced,” Ailion says. “It might take less work to sell. That could lead to a discount.”
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 Real Estate Agent Commission Is Split
The final commission paid often represents weeks’ or months’ worth of work in which the real estate agent must price the home, market it, negotiate with home buyers, and sit down with all parties at the closing table. When you ask How much do real estate agents make? then this is the biggest determining factor.
The commissions are typically split among four parties:
- Listing agent – Represents the seller
- Listing broker – Whom the listing agent works for
- Buyer’s agent – Represents the buyer
- Buyer’s agent’s broker – Whom the buyer’s agent works for
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.
How commissions have changed over the years
Since the early 1990s, Realtor commissions have seen a fairly steady decline. In 2021, the average commission was 5.5 percent — down from more than 6 percent in 1991.
This isn’t to say the total amount Realtors earned decreased, however. In strong selling markets, home prices are high and sellers receive multiple offers. This allows more room for negotiation on the commission, so Realtors may accept a lower commission to earn a higher amount overall.
As the market slows down, Realtor commissions may rise again and become less negotiable. Even so, a seller with a high-priced listing may still be able to negotiate a lower commission more effectively.
What About Broker Compensation?
Unlike real estate agents, brokers are free to work independently. Brokers can also hire a real estate agent to work for them. This is why popular brokerage groups like RE/MAX and Coldwell Banker are able to generate so much money because thousands of agents are earning for them across the country. All real estate commissions must be paid directly to a broker, then the broker splits that commission with any other real estate agent involved in the transaction.
The compensation a broker makes is typically specified in the listing agreement. That is also known as a contract between a seller and the listing broker which details the conditions of the listing. As noted earlier, the commission is negotiable in every case. In fact, it is a violation of federal antitrust laws for members of the profession to attempt, however subtly, to impose uniform commission rates.