Content of the material
- Real Estate Agent vs. Realtor
- How do real estate agents get paid?
- Example of a Real Estate Commission
- Alternatives to using a real estate agent or Realtor
- How Real Estate Commissions Are Paid
- An Example
- Do Real Estate Agents Get a Base Salary?
- Who pays the real estate agent commission?
- Example real estate commission earnings
Real Estate Agent vs. Realtor
Getting a real estate license does not make someone a Realtor (also written as REALTOR®). That person would simply be called a real estate agent. However, most real estate professionals join a local board of Realtors, such as the National Association of REALTORS®.
NAR outlines a Code of Ethics that all of their members must follow. Consequences for violating these published codes of ethics can include disciplinary action and loss of membership, as well as potential litigation.
How do real estate agents get paid?
Real estate agents earn a commission each time they assist a buyer or seller with a sale.
The commission amount — including the percentage that goes to the buyer’s agent — is specified in the listing agreement drawn up between the home seller and their agent.
When a home sale closes, commissions are deducted from the proceeds and distributed through the escrow or title company directly to the buyer’s and seller’s agents’ brokerages.
Each broker then disburses the proper share to their agent, according to their agreed-upon commission split, which typically starts at 50/50 and graduates to 70/30 or better as agents grow their sales numbers.
Some agents (like those who work for Redfin) get a base salary from their brokerage and earn a smaller commission from each sale — but most work exclusively on commission.
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.
We used publicly available data from the United States Bureau of Labor Statistics to source information about the annual earnings of real estate agents across the country in 2021.
The salary information in our customized data tables intentionally excludes real estate brokers. Brokers often act as both agents and brokerage managers, so their earnings are generally higher and their compensation structure includes a salary or a percentage of the brokerage’s overall sales.
Average commission numbers and total take home pay were sourced from Clever Real Estate’s 2021 survey of real estate agents in all 50 states.
Alternatives to using a real estate agent or Realtor
Many sellers think real estate agents’ commissions as too high and try to avoid them.There are three main ways of selling a home without such high costs:
- For sale by owner — At its most basic, this might involve putting up a yard sign, printing and distributing some flyers, and telling everyone you know your home’s for sale. It’s cheap and sometimes works, especially in hot real estate markets. But the risk of undervaluing or overvaluing your home is high
- Flat-fee MLS listing by owner — The MLS is the Multiple Listing Service. It’s the online resource that real estate agents use to let other agents and buyers know that a home is available. Owners can add their listings (which may appear on Realtor.com and Zillow, too) by paying a flat fee — or a smaller flat fee with a success charge on sale
- Trimmed-down services — Some agents offer lower commissions for a more basic service. You might get a menu — from MLS alone through increasingly complete levels of service — from which you choose what you want and how much you’re willing to pay
Are these better ways to sell? That will depend on many factors, including:
- How strong your local property market is
- How good you are at appraising your own home’s value
- How much effort you’re prepared to put into finding a buyer
- How confident you are in your ability to shepherd your sale through to closing
If you’re sure you can handle all those as well as an agent, feel free to sell without enlisting one.
But for many people, working with a real estate agent, broker, or Realtor gives them peace of mind they’re getting the best price on their home from the most qualified buyer.
How Real Estate Commissions Are Paid
How much agents earn depends on the number of transactions they complete, the commission that's paid to the brokerage, and their split with sponsoring brokers. Agents who are just starting typically receive a low commission split while they learn the business.
Apart from buyer-broker agreements that allow for direct payment to a buyer’s broker, most real estate agents are paid through a listing agreement signed by the seller and the listing agent. The agent signs on behalf of the brokerage.
The listing broker then shares part of that commission with the brokerage that represents the buyer. All real estate commissions are negotiable, but agents set their own rates with fees paid directly to the broker, not the agent. Agents work for brokers.
The seller typically designates how much the buyer's agents are paid, but it's also based on local custom.
A listing commission can vary from a flat fee to 10% or more of the sales price.
Let's look at an example of how much a listing agent would earn if the commission paid were 7% with a 50% split with the brokerage that produces the buyer.
If the sales price were $200,000, the total commission at 7% would be $14,000, of which $7,000 would be retained by the listing brokerage. From that $7,000, the listing agent would be paid on a split; for a first-year agent, you could expect to pay around 60%.
The agent would gross $4,200 at a 60% split. They would net about $2,940 of that after deducting federal and state taxes, which could amount to 30% or more. The agent also pays overhead and expenses, which could eat up another 20% of the gross, resulting in a net income of just $2,352.
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.
Who pays the real estate agent commission?
Here’s some good news for home buyers: The seller typically pays the real estate agent commissions.
If you’re selling, the news isn’t so great.
Smart buyers will often have their own “buyer’s agent.” This can be great because it gives you a skilled professional (if you choose yours carefully) who is 100% on your side and who comes with skills, expertise and knowledge.
Usually, sellers pay for their own agent and the buyer’s agent, too.
Of course, you could argue that the seller pays commissions using money from the buyer. So the question of “who pays the total commission” is open to interpretation.
No matter how you look at it, buyers won’t pay extra to hire their own agent. If you don’t have a buyer’s agent, the seller’s agent will keep the entire commission without offering you any representation.
Also note that the average real estate agent charges “commissions” rather than “fees.” That means they get paid for success rather than by the hour or for services rendered.
So, if a deal doesn’t go through, they’re unlikely to make any money at all on it. This sometimes results in an agent getting lucky and making a pile of money on a quick and easy transaction. But, at least as often, it sees him or her getting no reward for a lot of effort.
Example real estate commission earnings
Listing agents often work with a buyer's agent or an agent who helps the buyer find a home. This means that at the end of the transaction, the listing agent and buyer's agent split the total commission of the sale. When factoring in the brokers' fees, the total amount decreases. Here’s an example of how a $300,000 home sale with a 6% commission breaks down at closing:
A $300,000 home sold with a 6% commission rate amounts to $18,000. The listing broker and buyer's agent broker each took $9,000 (or half). The brokers then split the $9,000 with the agents at a 60/40 ratio. The listing agent and buyer's agent each took $5,400 ($9,000 x 0.6). Each broker keeps $3,600.
There are many scenarios where the final details of a transaction differ. For instance, there may be other parties involved in the sales process who take a cut of the profit or the listing agent may also act as the buyer's agent, which means they take home more profit.