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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 Real Estate Agents Get Paid
Real estate agents make money through commissions, which are based on a percentage of the property’s selling price. These commissions are paid to the agents’ sponsoring brokers. The commission split between the agent and the broker depends on the agreement they have.
When a property is put on the market, the seller and the listing broker sign a listing agreement, which includes the broker’s compensation—usually a commission. Commissions are typically between 5% and 6% of the final sale price, although they can vary. It’s important to note that commissions are negotiable.
How Commissions Are Shared
Real estate commissions are often divided among several parties involved in the transaction. 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
The commission split between the agent and the broker can vary. It is common for more experienced and top-producing agents to receive a larger percentage of the commission.
Example of a Real Estate Commission
Let’s 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. The brokers then split their commissions with their agents.
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
How Much Do Real Estate Agents Make?
The amount of money real estate agents make each year depends on various factors, including the number of transactions they complete, the commissions they bring in, and the split with their sponsoring broker. In 2022, the median annual salary for real estate agents was $52,030, according to the U.S. Bureau of Labor Statistics. However, agents and brokers can make much more than that, with the top 10% earning over $113,320 for agents and $173,000 for brokers.
NAR Settlement
In March 2024, the National Association of Realtors (NAR) reached a settlement in a court case concerning broker commissions. As part of the settlement, NAR agreed to pay $418 million over approximately four years. The resolution also resulted in the release of most NAR members and industry stakeholders from liability. Additionally, NAR agreed to implement a new MLS rule that would prohibit offers of broker compensation on the MLS and require MLS participants working with buyers to enter into written agreements with their buyers. This settlement is expected to lower commission rates for sellers.
Other Pay Models
While the most common pay model for real estate agents is a percentage of the commission, there are other ways agents can be compensated. Some agents employed by companies like Redfin receive a base salary plus bonuses based on the price of every home sale they close. Agents can also earn referral fees by suggesting clients to other agents or real estate professionals for services such as property management, financing, or relocation assistance.
Conclusion
Real estate agents make money through commissions that are based on a percentage of the property’s selling price. The commission split between the agent and the broker can vary, and it is often divided among several parties involved in the transaction. The amount of money real estate agents make each year depends on various factors, and there are other pay models besides commissions. With the recent NAR settlement, commission rates are expected to be lower for sellers in the future.
