Real estate agents are paid based on commission, which is an amount negotiated in the sale contract. Buyers often pay closing costs, which include things like taxes, title insurance and appraisal fees.

Real estate agents are experts when it comes to pricing homes, marketing properties and guiding homebuyers through the closing process. Despite these important duties, many people wonder: How do real estate agents get paid?

How Much Do Real Estate Agents Get Paid?

Real estate agents are paid commissions on home sales. Most of these commissions are based on a percentage of the property sale price. (There are also flat fees, though these are less common.) Agents typically work under real estate brokers, and the brokerages take their share of the commissions to pay their agents. As with any other business, the compensation for real estate agents is eroded by various taxes and expenses. Federal, state and self-employment taxes along with the cost of doing business-including insurance, multiple listing service fees, and advertising-end up taking a big chunk of what agents earn. Read more

When a person sells a house, they will normally sign a listing agreement that outlines the exact fee that the real estate agent will be paid when the home is sold. This fee is typically in the range of 5% to 6% of the sale price of the property, and is split four ways-between the listing agent, the buyer’s agent, and the two brokerages involved.

Unlike most other businesses, real estate agents do not receive a base salary and are therefore dependent on the commissions they generate from home sales to stay in business. This makes it important for home sellers to be very clear on the amount of money they are willing to pay in commissions and what services their real estate broker will provide them.

Should I Include My Real Estate Agent’s Commission in Closing Costs?

Technically, no. Closing costs are an assortment of fees, separate from real estate agent commissions, that must be paid at closing to cover things like transfer taxes, lender fees, appraisals, title insurance and more. Most of these fees are paid by the buyer, but the seller may choose to cover some of these fees as part of the sales negotiation.

Additionally, many real estate agents offer a cash back rebate to their buyers at the end of the process. This can be a great incentive for buyers and help to close deals that might otherwise stall.

How Do Real Estate Agents Get Paid?

Many people wonder who pays the real estate agent, and the answer is surprisingly simple. Home sellers pay the agents and brokers who facilitate the sale of their home. The agents and brokers are paid a commission payment, which is often based on the total sales price of the home.

That commission payment is typically divided between the listing agent and the buyer’s agent. The average commission in the US is 6%. So, for example, a home selling at its list price of $500,000 will yield a commission payment to the agent and broker of $6,000. This is split between the two parties, so each receives $3,000.

The remaining 50% of the commission is usually given to the real estate agent’s brokerage. The brokerage then writes a check to the real estate agent. As an independent contractor, this check is taxable income.

Buyer’s agents are also generally paid on a commission basis, though this can vary depending on their brokerage and location. So, for example, a NYC buyer’s agent may earn a commission of 5% on the total purchase price.

While the 6% average commission rate for a typical residential transaction in the US is fairly standard, it’s important to remember that every home sale or purchase is different. There are a variety of factors that can change how much a real estate agent will make on a particular deal, including the location and whether or not there’s a seller bonus.

In addition to negotiating the best possible sales price, a good real estate agent will help home buyers understand mortgage terms and requirements, arrange a home inspection, and navigate any issues that may arise during the home buying process. They will also have an eye for the nuances of each neighborhood and property, making them an invaluable resource for homebuyers looking to find their dream home. This type of work doesn’t come cheap, but the expertise that a professional real estate agent brings to a transaction is well worth the investment.