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 make money through commissions based on a percentage of a home'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 agent's split with their sponsoring broker. Here's a rundown of how real estate agents get paid—and how much they make.
How Real Estate Agents Get Paid
- Most real estate agents make money through commissions.
- A single commission is usually split multiple ways between the seller's agent and broker, and the buyer's agent and broker.
- The commission split depends on the agreements the agents have with their sponsoring brokers.
Real Estate Agent Commission Explained
Most real estate agents make money through commissions. These are payments made directly to real estate brokers for services rendered in the sale or purchase of property. A commission is usually a percentage of the property's selling price, although it can also be a flat fee.
Real Estate Agent vs. Broker vs. Realtor
To understand how real estate agents are paid, it helps to understand the relationship between agents and brokers.
Agents are salespeople who are licensed to work under the umbrella of a designated broker. Agents cannot work independently and are prohibited from being paid a commission directly by their clients.
Brokers, on the other hand, are able to work independently and hire real estate agents as their employees. All real estate commissions must be paid directly to a broker. The broker then splits the commission with any other agents involved in the transaction.
Both real estate agents and brokers can be Realtors. The Realtor title can be used by agents and brokers who are members of the National Association of Realtors and subscribe to its strict Code of Ethics.
How Real Estate Commissions Work
The broker's compensation is specified in the listing agreement, which is a contract between a seller and the listing broker that details the conditions of the listing. The rate of the broker's commission is negotiable. In fact, it is a violation of federal antitrust laws for members of the profession to attempt, however subtly, to impose uniform commission rates.
Commissions generally range between 4% and 6% across the country, though they may be higher or lower based on market. The seller pays the commission unless the buyer and seller negotiate a split. Most sellers factor the commission into the asking price, so it can be argued that the buyer pays at least some of the commission in either case due to the higher asking price.
Each agent has an agreement with their sponsoring broker that specifies the agent's cut of the commission. It could be a 50-50 split between the broker and the agent, or anything else that's been agreed upon.
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 the listing agent works for
- Buyer's agent—the agent who represents the buyer
- Buyer's agent's broker—the broker the buyer's agent works for
How Do Realtors Get Paid?
Real estate agents—whether they are Realtors or not—are typically paid a percentage of the commission the listing broker earns on the transaction.
Here's an example. 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, both the listing broker and the buyer's agent's broker get half of the commission, or $6,000 each ($200,000 sales price x 0.06 commission ÷ 2). The brokers then split the 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 the agent and broker agree on. 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, they keep the full 6% commission or another agreed-upon rate. Or, if a listing agent sells the property by acting as both the seller and buyer's agent, they split the 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—along with the costs of doing business, including insurance, dues, fees, MLS fees, and advertising—end up taking sizable chunks out of the agent's commissions.
How Much Do Real Estate Agents Make?
The median annual pay for real estate agents was $48,930 in 2019, according to the most recent data available from the U.S Bureau of Labor Statistics. For brokers, the figure was $59,720.
Of course, real estate agents and brokers can make much more than that. The highest 10% of agents earned more than $111,800 in 2019, while the top 10% of brokers made upwards of $178,720.
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 transaction is not complete. If the broker has an offer from a buyer who is ready and able to make the purchase, the broker may still be entitled to a commission if the seller:
- 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 sellers to pay a commission even if the home doesn’t sell.
Other Pay Models
Although it is common for agents to be paid a percentage of the commission, there are cases where real estate agents who are employed by a broker are paid a salary. Redfin.com is one example. It's an online property search site that employs a staff of full-service real estate agents who are paid a salary plus bonus, based on customer satisfaction ratings collected by the company.
How Much Realtors Make FAQs
How Are Real Estate Fees Paid?
Real estate commissions are deducted directly from the sale proceeds at closing. The amount is then paid directly to real estate brokerage firms, which split them with the involved agents.
Do Real Estate Agents Get Paid 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.com—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 sale proceeds. This amount is then split between the agency and the agent.
Do Real Estate Agents Get Paid Weekly?
Real estate agents do not get paid weekly. Instead, they work for commissions on the sales they make. These commissions are split between the agency and the agent and are paid following closings.
What Percentage Do Most Real Estate Agents Charge?
Real estate commissions typically range anywhere between 4% and 6% of a property's sale price. This amount is further divided between the agency 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 their broker. The commission split a particular agent receives depends on the agreement the agent has with their sponsoring broker.