As a real estate agent, it’s important to understand how you make money in this industry. Here’s the bottom line on how a real estate agent gets paid.
A typical commission for selling a home is 6% of the sale price, but that amount is then divided between the buyer’s agent and the seller’s agent. So if you are working with the buyers, you will likely only see 3% of the total commission. And out of that 3%, half will go to your broker leaving you with 1.5%.
How a Real Estate Agent Gets Paid
Like most sales industries, how a real estate agent gets paid is by commission or a percentage of the home’s sale price.
In 2022, the average salary for a real estate agent was $85,597 to $112,309, with the median salary being $48,770 according to the most recent data from the Bureau of Labor Statistics.
For brokers, the mean annual salary was $86,490.
While the average real estate agent or broker may make a comfortable salary, the top earners in the field can bring in much more. In 2021, the top 10% of agents earned over $102,000 while the top 10% of brokers made over $176,000.
Do Real Estate Agents Get a Base Salary?
Most real estate agents are typically paid on a commission-only basis. However, there are certain agents who receive a base salary in addition to bonuses.
How Much Commission Can You Earn?
The real estate commission is negotiable but is typically 5% to 6% of the price of the home.
The terms for agents’ commissions vary according to each transaction, region, and brokerage.
Typically, the seller pays the realtor’s fees. The seller signs a listing agreement with the agent, which states how much commission will be paid.
In many states, the buyer is not responsible for paying the realtor fees. Instead, both the buying and selling agents are paid by proceeds from the sale of the home.
The two real estate agents would split the 6% total commission, so each would get 3%.
In a dual-agency situation, only one agent represents both the buyer and seller.
As a buyer, you should always be aware of the possibility of dual agency. In this type of situation, it is especially important to get a fair price by paying close attention to the appraisal. While agents have a duty to their clients, dual agency can sometimes create a conflict of interest. By being informed and vigilant, you can help protect your interests.
If you’re working with a buyer’s real estate agent, you have to sign a buyers’ representation contract.
The buyer’s agent protects the interests of their client, as opposed to a listing broker, who is actually working on behalf of the seller.
Brokerages may also get a commission. A 95/5 payout splits the commission between the agents and the company.
The brokerage firm is responsible for the policies and actions of its agents. If the agent does anything illegal or unethical, they can be sued for it.
When selling a house, many homeowners believe a real estate agent charges an outrageous fee. However, the fees are based on the selling price of the home and can vary greatly.
The real estate industry has been experiencing a decrease in realtor fees. Currently, the average fee is 4.94%.
With rates so low, it’s the perfect time to work with a real estate agent if you’re looking to buy a home. But, even if you’re not, there are still plenty of reasons to sell.
Buying a home takes time, and you’ll need to still stage your home and list it for sale.
Despite the shift to online real estate services during the coronavirus outbreak, real estate agents are still providing a variety of valuable services for buyers and sellers.
Real Estate Commission Examples
Here’s an example of how a real estate agent gets paid. The agent gets a percentage of the fee that the listing broker receives.
Let’s say an agent has a listing on a $200,000 house, their total commission would be $12,000 at a commission rate of 6%.
If the home sells for the asking price, the listing broker and buyer’s agent’s broker will each receive 50% of the commission, which equals $6,000 each. The brokers will then split their commissions with their agents.
A typical commission split gives the agent 60% and the broker 40%, but this ratio can be modified depending on what is agreed upon by both parties.
It is not uncommon for more experienced and top-producing agents to receive a larger percentage of the commission. This is because they can bring in more business and provide a higher level of service.
In a 60/40 split, each agent in our example receives $3,600 and each broker keeps $2,400. 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
In some cases, brokers who list a property and find a buyer earn the entire 6% commission.
If a listing agent sells a property by acting as an 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, the broker will keep $4,800 and the agent will receive $7,200 in a 60/40 split.
As with any other profession, an agent’s earnings are reduced by taxes and business expenses. These include federal and state taxes, as well as the costs of doing business, such as insurance, MLS fees, advertising, and dues. Together, these can take a significant portion of an agent’s commission.
Who Pays the Real Estate Agent Commission?
Good news for buyers: The seller usually pays for the real estate commission.
Buyers often have their own “buyer’s agent” which can be a great thing because it gives you a skilled, experienced, and knowledgeable expert who is working on your behalf.
Sellers usually pay their own real estate agent plus the buyer’s agent.
Who actually pays for the real estate fees? This question does not have a clear, cut-and-dry response. The seller could argue that the money comes from the buyer, so in a sense, it is the buyer who pays for the commission.
Buyers don’t usually want to pay their own agents, so if you don’t have a buyers’ rep, the agent representing a seller will take the whole commission.
As a general rule, real estate agents charge commissions rather than fees. This means that they only get paid if the deal goes through, as opposed to being paid hourly or for services rendered.
If a deal falls through, the agent usually doesn’t make any money. Sometimes this can result in the agent making a lot of money from a quick and easy transaction. However, more often than not, the agent puts in a lot of work with no payoff.
What If The Sale Doesn’t Close?
Generally, commissions are only paid out when a deal closes.
There are cases where the seller is responsible for paying the commission even if the deal doesn’t go through. These terms are often specified in the seller’s contract.
This scenario is extremely rare, but it can happen. For instance, if the buyer is ready to buy, but the owner does one of the following:
- Changes their mind and refuses to sell
- The spouse refuses to sign the deed
- The title has defects
- Commits fraud related to the transaction
- Cannot deliver ownership to the buyer within a reasonable time
- Insists on terms not listed in the listing agreement
- Cancels the transaction with the buyer
If any of the above occurs, and the broker is unable to find another buyer who is willing to purchase the property under the same terms, then the seller may owe the broker a commission.
Listing agreements are individually negotiated and can include contingencies that require the seller to pay the commission even if the sale doesn’t close.
How to Determine The Real Estate Agent Commission
The commission percentage is set based on several factors, including local real estate market conditions.
The amount is usually negotiated between the seller and the listing agent.
This means that some agents are willing to negotiate their commission. Some even offer a discount in the contract, while others may offer one later.
About three out of five times, sellers get a commission discount.
Brokerage commissions have been trending down because houses are now easy to advertise on the internet. The MLS automatically syndicates listings to real estate websites like Zillow and Realtor.com, making the job of listing agents much easier.
Commission discounts are given for many reasons.
If a homeowner is selling one house and buying another using the same agent, the agent may offer a discount. Or if the property is in a hot market and easy to sell, the agent could offer a discount.
Now you know how a real estate agent gets paid. Most agents get paid through commissions that go to their broker when a transaction is finalized. The commission is then split between the listing agent, the selling brokerage, the buyer’s agents, and their respective brokers.
The percentage each real estate agent receives depends on their agreement with their brokerage firm.