How Do Real Estate Agents Get Paid?

Investing News

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 a number of factors, including 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—and how much they make.

Key Takeaways

  • Most real estate agents make money 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.

Real Estate Commission

Most real estate agents make money through commissions that are based on a percentage of a property’s selling price, (Commission 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.

Real Estate Agent vs. Broker vs. Realtor

The relationship between agents and brokers helps explain how real estate agents are paid.

Real estate agents are sales people licensed to work under the umbrella of a designated real estate broker, who ensures the agents are in compliance with state and national real estate laws. Agents cannot work independently and are prohibited from receiving commissions directly from their clients.

Brokers, who are able to work independently, 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 subscribe to 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, which is a contract detailing the terms of the listing, including the broker’s compensation—usually a commission. It’s important to note that the commission is always negotiable. In fact, it is a violation of federal antitrust law for members of the real estate profession to attempt, however subtly, to impose uniform commission rates.

Commissions generally range between 5% and 6% of the final sale price, though they may be higher or lower based on market conditions. Unless the buyer and seller negotiate a split, it is the seller who pays the commission. Most sellers factor the commission into the asking price, so it could be argued that the buyer always pays at least part of the commission, either directly or indirectly (through a higher purchase price).

Both the seller’s agent and the buyer’s agent have agreements with their sponsoring brokers that specify the agent’s cut of the commission. It can be a 50/50 split between the broker and the agent or any other split they choose.

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 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.

How Much Do Real Estate Agents Make?

In 2022, Indeed.com listed the annual pay for real estate agents in the $85,663 to $112,395 range, depending on years of experience. The median annual salary was $48,770 in 2021, according to the most recent data available from the U.S. Bureau of Labor Statistics. For brokers, the mean annual salary was $86,490.

Of course, real estate agents and brokers can make much more than that. The highest 10% of agents earned more than $102,170 in 2021, while the top 10% of brokers made $176,080.

Commissions When the Sale Doesn’t Close

Commissions are generally paid only when a transaction settles. There are instances, however, when a seller is technically 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 situation 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 Pay 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 customer satisfaction ratings.

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 are paid at closing and split between the brokers and the agents.

What Percentage Do Most Real Estate Agents Charge?

Real estate commissions typically range between 4% and 6% of a property’s sale price. This amount is further divided between the brokerage and the agent who worked on the sale.

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 often split multiple 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.

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