How Do Real Estate Agents Get Paid?

A career in real estate is a highly sought-after profession, and for good reason. It provides agents with a flexible schedule, the opportunity to interact with all types of people, and unlimited earning potential.

Speaking of income, those new to real estate may be wondering exactly how real estate agents get paid. This article explains what you need to know about the real estate agent payment structure.

What Is a Commission?

Real estate agents are paid on commission, meaning once a sales transaction is complete, the agent receives a percentage of the sale proceeds. In some cases, brokerages (like Redfin) provide agents with a base salary and a bonus for each completed transaction. However, this is uncommon, and most brokerages have a commission-based compensation structure.

Additionally, most agent-brokerage contracts have some sort of commission split agreement in which the brokerage takes a percentage of the agent’s commission check to help pay for overhead costs such as office rent, utilities, marketing, and employee benefits.

How Do Commissions Work?

Commissions can be negotiated between agents and their clients, but typically, commissions are 6% of the sales price of a home and are usually paid by the seller. However, the agent does not get to keep that entire 6%. First, it is split between the listing agent and the buyer’s agent, usually 50/50, but not always. So, if a home sells for $300,000 and the commission rate is 6%, the listing agent would receive a $9,000 commission check (3%), and the buyer’s agent would receive a $9,000 commission check (3%).

Additionally, the agent must split their commission with their brokerage per their commission split agreement. It’s typical for commissions to have 80/20 splits, whereby the agent keeps 80 percent, and the other 20 percent goes to the brokerage. So, in the previous example, the agent would have to pay $1,800 to their brokerage, leaving $7,200 for the agent. It’s important to remember that commission split agreements are not set in stone. An agent can always renegotiate a commission split agreement with their brokerage, especially once they have proven themselves valuable to the firm.

What Happens if a Sale Doesn’t Close?

If, for some reason, a sale doesn’t close (either because the seller changes their mind about selling it or they can’t find a buyer), the seller’s agent will not receive a commission. However, some agent-seller contracts stipulate that the agent will be reimbursed or paid for work done if the seller decides to take their home off the market.

How Does the NAR Settlement Affect Agent Commissions?

In March 2024, the National Association of REALTORS® (NAR) reached a settlement agreement that may impact real estate agent commissions. Essentially, the settlement increases transparency surrounding commissions and fees for NAR members and potentially gives buyers more leverage to negotiate commission rates.

One potential repercussion of this agreement is that some agents may lower their commission rates to be more competitive, especially if they don’t have much prior experience or big successes to demonstrate their value to prospective clients. In fact, this may create an opportunity for new agents to attract more clients who are looking to save money on commission. However, it is still too early to tell what the repercussions will be, if any.

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