How Do Real Estate Commissions Work?
Many people don’t understand how real estate commissions work. Real estate agents don’t get paid hourly or receive a salary. They get paid commissions from their real estate sales.
When you are buying or selling property, the most practical approach is to hire a real estate agent. Buyers agents and sellers agents specialize in guiding clients through the selection, negotiation, and closing process. But who pays them? One of the most mysterious aspects of property selling is how the real estate commission for agents and brokers actually works. Who pays, how much, and when are the real estate pros paid in the process?
What Is Real Estate Commission
Real estate commission is the money agents earn for helping clients buy or sell a property.
The commission fee is usually a percentage of the final sales price of the property. Although there is no set amount charged by Realtors, traditionally the most common real estate commission has been 6% of the gross sales price of the property.
Now, let’s explore the frequently asked question, how do real estate commissions work?
How real estate commission works
Real estate commissions are negotiable between the listing agent and their client. Many charge certain percentages of their sales prices, where some list a home for flat fees. Real estate brokerages share and cooperate commissions with other brokerage companies. Real estate agents have an agreement with their brokerage companies about how much of their earned commissions they share with their brokerages.
The standard real estate commission
Although there is no set commission and every brokerage charges what they choose independently, In residential real estate, a 6% commission is considered standard. It has always been an option to charge more or less. The total real estate commission is specified on the listing agreement as two separate commissions. So who gets paid what?
Of a traditional 6% commission fee, 3% goes to the listing broker and 3% to the buyer’s broker. Both the listing agent and the buyer’s agent will be paid by their respective brokers as part of their commission split agreement. Much has changed on how the total commission gets split since the Department of Justices came down on NAR and forced them to change the practice of stating (and enforcing) an offer of compensation in the Multiple Listing Service. But that is a discussion for another day.
Commission Splits Between Brokers and Agents
Real estate commissions are always paid directly to the brokerage company. Real estate agents have written agreements with their companies that spell out how much they get paid out of the total commission, also known as a commission split.
Some brokerage companies split the commission 50%/50% with their agents. Some agents receive 60%, and their broker gets 40%. Sometimes, the agent’s split can be 70%/30% or even 80%/20% between them and their companies. A common “commission split” between the agent and broker today is a sliding scale where the agent may get 60% of their commission up to a specific point, called a “cap”. In this commission structure, the agent will get a much larger percentage of their commission after they have reached their cap.
Sometimes the real estate agent commission is on a sliding scale where they start out at a certain percentage, and then their total commission increases because of sales activity. This is all negotiable between real estate agents and their brokerage companies.
The 100% Cap
As of 2026, the most common commission split between the agent and broker is for the broker to give 100% of the commission after an agent reaches their cap. As an example, if the agent has a Cap of $20,0000, they will make their commission split (lets say 70% of the earned commission) until they have played the real estate broker $20,000 which would be their Cap. Upon reaching their Cap they make 100% of the earned commission. Well, kind of…
Fixed vs Variable Listing Costs and Commission Splits
As mentioned earlier, any listing taken by a real estate agent is actually being taken on by the real estate broker. The broker is the one who officially owns the listing, collects the commission at closing, and then pays the agent according to their agreement.
When a broker takes on a listing, that listing comes with both fixed and variable costs. Variable costs are the expenses that only show up when there’s a new listing—things like yard signs, photography, or a specific marketing package. If there were no listing, those costs wouldn’t exist.
Fixed costs, on the other hand, are there whether the brokerage has one listing or a hundred. These might include the office lease, utilities, insurance, and other overhead for the “bricks and mortar” operation. Every real estate brokerage has its own mix of fixed and variable expenses.
Why does this matter? Think about that “100% commission” an agent gets after hitting their Cap. That 100% can only apply to the portion of the commission that goes toward fixed expenses.
When a broker designs a commission plan, they’re doing the math on both the fixed and variable costs per agent and per listing. The Cap is set at the point where the broker has recovered the amount they need to cover the agent’s share of fixed expenses. After that, the expectation is that the agent will effectively cover the variable expenses for each new listing they take.
If that weren’t the case—if the brokerage were still covering those variable costs after an agent hit their Cap—the brokerage would actually lose money on every new listing that agent took. This piece of the commission-split puzzle is rarely talked about, but it’s a major reason why many traditional independent brokerages and big franchises have struggled to compete with newer real estate models that operate with much lower fixed expenses.
Average Real Estate Commission Rates by State
Below are the average commission percentages, paid by the seller to the broker by state. Needless to say, the average price of a home varies dramatically by state and the amount of commission the real estate agent gets paid is directly correlated to the sales price. To really see how much money real estate agents make, you have to look at the number of transactions they have and the average sales price. The average number of houses Realtors sell in a year is a staggeringly low number.
| Average Realtor Commission Rates by State | |
| State | Commission |
| New York | 4.66% |
| Rhode Island | 4.86% |
| Alaska | 4.99% |
| Nevada | 5.08% |
| California | 5.14% |
| New Jersey | 5.17% |
| Delaware | 5.18% |
| New Hampshire | 5.19% |
| Louisiana | 5.20% |
| Massachusetts | 5.25% |
| Illinois | 5.29% |
| DC | 5.30% |
| Connecticut | 5.38% |
| Hawaii | 5.39% |
| Utah | 5.39% |
| Oregon | 5.43% |
| Pennsylvania | 5.44% |
| West Virginia | 5.44% |
| Maryland | 5.46% |
| Wyoming | 5.50% |
| Alabama | 5.52% |
| Florida | 5.53% |
| Minnesota | 5.53% |
| North Carolina | 5.56% |
| Colorado | 5.58% |
| Virginia | 5.58% |
| Mississippi | 5.62% |
| Oklahoma | 5.63% |
| Montana | 5.67% |
| Washington | 5.67% |
| Arizona | 5.68% |
| Idaho | 5.69% |
| Kentucky | 5.69% |
| Nebraska | 5.71% |
| Arkansas | 5.72% |
| Missouri | 5.79% |
| Kansas | 5.80% |
| Tennessee | 5.80% |
| Ohio | 5.81% |
| New Mexico | 5.83% |
| Georgia | 5.84% |
| Wisconsin | 5.86% |
| Michigan | 5.93% |
| South Carolina | 5.94% |
| Maine | 6.00% |
| North Dakota | 6.00% |
| South Dakota | 6.00% |
| Texas | 6.00% |
| Vermont | 6.00% |
| Indiana | 6.08% |
| Iowa | 6.15% |
Data from fastexpert
How much is the real estate commission for rentals?
A real estate broker also charges to list and rent investment or rental properties. This is typically a flat fee, for example, one month’s rent in commission. Again, this is negotiable between the property owners and the listing agents. People looking to rent a home usually do not pay any commission. However, in some areas, it is more common.
Who pays the agent’s commissions?
Typically, the home seller is the one who pays the real estate commission amount for the home sale transaction based on the home’s sales price. The seller pays the listing broker after the house sells. Then, the listing broker shares the commission with the buyer’s broker.
The commission is negotiable between the seller and their listing agent/broker. They also strategize on how to make an offer of compensation to the agent that brings a buyer. Many times the seller’s brokerage company splits the commission equally with the buyer’s brokerage company. Sometimes it is not split equally and sometimes they won’t offer any commission and have the agent that brings the buyer negotiate their commission into the real estate transaction. It all depends on the situation.
Do buyers ever pay real estate commission?
Traditionally, the sellers would pay all of the commission. This is why discount real estate brokers have become more popular selling homes for less money.
Since the 2024 NAR settlement with home-sellers, the buyer’s side of the commission is now handled much more directly between buyers and their own agents. Buyer agents now must sign a written buyer-representation agreement before touring homes and that agreement has to spell out clearly how much the agent will be paid and who is responsible for paying it.
MLSs are no longer allowed to publish blanket “offers of compensation” from listing brokers, so there’s no automatic offer of commission field for buyer agents like there used to be. Instead, the buyer and their agent agree on a fee, and that fee can be paid in several ways: the buyer can pay it directly, they can negotiate a seller credit or other concession to help cover it, or the parties can structure some mix of the two.
Sellers can still choose to contribute toward buyer costs or even the buyer’s agent fee, but it has to be negotiated off-MLS and reflected as concessions or contract terms, not as a preprinted MLS offer.
What is Dual Agency in a Real Estate Transaction?
If the listing broker also has the buyer for the transaction, their company gets the entire commission amount. This is called “dual agency”. Depending on the state and their laws, Dual Agency can also be two different real estate agents from the same brokerage company involved in the sale. One may represent the seller and one may represent the buyer. On occasion, the seller’s real estate agent will also have the buyer for the home.
Dual agency commission
If there is no cooperating broker then the LISTING AGENT winds up making double the money because they wind up acting as a DUAL AGENT which means instead of each party having a licensed REALTOR advocating on their behalf you have ONE REALTOR acting as an advocate for both parties. Dual Agency is not legal in all states, but is very common.
Now is this a bad thing? Not always, some agents walk the tightrope very well between two parties but to make a legal analogy it’s like one lawyer showing up to represent the plaintiff and defendant in court and because of this in order to act as a DUAL AGENT both the seller and the buyer must agree to allow that agent to do so.
Alternative Real Estate Commission Structures
If you want to try something other than traditional real estate commission, keep your eye out for opportunities for, discount, flat-fee, split commission, or even a more DIY approach to real estate services.
- Discount Full Service Real Estate Broker – Some brokerages specialize in this “discount” style model, but many provide full service just the same as any other brokerage, they just do the work for less money.
- Flat Fee Real Estate Services – Real estate agent asks a flat fee instead of commission
- Split Commission – Buyer and seller each pay their own agents commission
- Select Real Estate Services – Manage and hire your own real estate services like inspectors or repair teams.
FSBO (for sale by owner)
A real estate agent’s commission covers a broad range of services. Some people feel they can sell their homes “by owner” in order to save the money spent on paying a commission fee to a brokerage company to list and sell their homes.
However, many times, the people who sell their homes by owner end up netting less money than if they hired a real estate brokerage to help them list and sell their home. Discount real estate brokers such as 1 Percent Lists offer the same services as other real estate brokers but at a discounted commission percentage.
FSBO commission
Buying from FSBO sellers would be another time when the buyer pays the real estate commission. If buyers purchase a home that is “for sale by owner” (FSBO) and the owners are not paying any commission to a brokerage that brings a buyer, the buyers will be responsible for the entire amount of commission it states on the buyer’s agreement.
What do Real Estate Commissions Cover?
Real estate commissions are fees paid to real estate agents for their services in facilitating the sale of a property. These fees typically cover the costs of the agents’ time and effort in marketing the property, showing it to potential buyers, negotiating the sale, and overseeing the legal and administrative aspects of the sale. The commission is typically the largest cost to selling a house.
This can include things like preparing and signing contracts, coordinating with other agents and service providers, and ensuring that the sale goes smoothly and is completed in a timely manner. The exact services included in a real estate commission can vary depending on the specific agreement between the agents and their clients.
It’s always a good idea to ask your real estate agent about their services and what is included in their commission before you enter into a contract with them.
Real estate agents spend time and money on your listing
Your real estate agent will prepare a CMA or comprehensive market analysis to determine the best asking price and potential sales price for the home. They spend time and money taking listing photos and marketing the home. That sign that your listing agent puts in the front yard to help attract attention costs more than you think.
Today, the best Realtors will leverage digital marketing to drive eyeballs to your listing. This may be in the form of a website, organic social media, paid social media ads, Google Ads, search engine optimization and more. There are an endless number of agencies offering digital marketing for Realtors.
How the Multiple Listing Service or MLS is Involved?
The listing agent also pays multiple listing service (MLS) dues to put your home’s listing in the local MLS which gets the listing exposure to all member brokers and agents. The MLS acts as an online clearing house and syndicates it’s members listings to other members websites. The MLS was initially tasked with enforcing the advertised payment of commission by the listing agent and the selling agent. That changed on August 17, 2024, when new rules from the National Association of REALTORS® came into being eliminating a preset commission to be agreed upon and advertised through the MLS.
That changed which came to be from a DOJ investigation into unfair practice by the National Association of Realtors, has changed the way MLSs do business. Now their primary focus is attempting to hold the real estate agents that participate to standards and providing real estate technology to their members. They also sometimes provide lockboxes and other tools and services to their members.
Working through the entire real estate transaction
Sometimes they have to pay real estate websites to highlight your home, as the internet is the top way people are finding homes. They negotiate one or more contracts to get you the best sale price for your home. Most real estate agents typically work with you and everyone else involved in the transaction all the way to closing. Buyer’s agents show you as many homes as it takes until you find the right one. They negotiate contracts for you, as well. They also work with you throughout the entire real estate transaction.
How much do real estate agents make?
The amount of money that real estate agents make can vary widely, depending on various factors, such as the location of the properties they are selling, the state of the real estate market, and their level of experience and expertise. In general, however, real estate agents make their money by earning a commission on the sale of a property.
This commission is typically a percentage of the sale price of the property and is paid by the seller at the time of the sale. The exact amount of the commission can vary, but it is typically between 5% and 6% of the sale price.
When are Real Estate Agents Paid?
Real estate agents and brokers are paid when the deal is done. When the property sale contract is signed, the buyer initiates their loan and gives the seller the full amount owed for the property. From this amount, sellers are then expected to pay the real estate commission as part of their half of the closing costs. Buyers then pay the closing costs involved in property taxes, title transfers, and final legal fees.
Real estate commission example
If a real estate agent sells a property for $500,000, they could earn a commission of $25,000 to $30,000. This is just an example, however, and the actual amount that a real estate agent makes will depend on many factors.
(Most)Real estate agents are NOT paid on salary
As you can see, most real estate agents are NOT paid on salary but on a commission-only basis. Similar to other industries, there are top producing agents that make up the vast majority of the transactions and earn a much higher than average real estate agent commission. There are also many agents who work just enough to keep their licenses active.
Disruptive real estate technology
With new disruptive new technology and brokerage models changing the real estate industry and how many real estate agents look at commission splits, we are seeing many top-producing real estate agents starting to move toward high-volume, lower-commission real estate franchises. And we are seeing the larger agents take a larger market share.
What is the Average Real Estate Agent’s Income?
Considering the vast differences in housing prices across the country coupled with the fact that most real estate agents work on a commission basis, we see drastic differences in how much real estate agents make. Below is a breakdown of the average real estate agents income broken down by state.
Average Real Real Estate Commission Listed by state
| The Average real estate agent income by state | ||||
| State | Annual | Monthly | Weekly | Hourly |
| Above National Average | ||||
| Washington | $103,157 | $8,596 | $1,983 | $49.60 |
| Maryland | $101,614 | $8,467 | $1,954 | $48.85 |
| New York | $98,369 | $8,197 | $1,891 | $47.29 |
| Virginia | $98,358 | $8,196 | $1,891 | $47.29 |
| Nebraska | $95,720 | $7,976 | $1,840 | $46.02 |
| Delaware | $95,328 | $7,944 | $1,833 | $45.83 |
| New Hampshire | $93,059 | $7,754 | $1,789 | $44.74 |
| Below National Average | ||||
| Idaho | $92,947 | $7,745 | $1,787 | $44.69 |
| California | $92,847 | $7,737 | $1,785 | $44.64 |
| Oklahoma | $90,705 | $7,558 | $1,744 | $43.61 |
| Massachusetts | $90,321 | $7,526 | $1,736 | $43.42 |
| Hawaii | $89,793 | $7,482 | $1,726 | $43.17 |
| Vermont | $89,478 | $7,456 | $1,720 | $43.02 |
| Nevada | $88,720 | $7,393 | $1,706 | $42.65 |
| Maine | $87,587 | $7,298 | $1,684 | $42.11 |
| Tennessee | $86,892 | $7,241 | $1,671 | $41.78 |
| Arizona | $85,931 | $7,160 | $1,652 | $41.31 |
| Wyoming | $85,920 | $7,160 | $1,652 | $41.31 |
| Connecticut | $85,749 | $7,145 | $1,649 | $41.23 |
| Rhode Island | $85,424 | $7,118 | $1,642 | $41.07 |
| Montana | $85,309 | $7,109 | $1,640 | $41.01 |
| Alaska | $85,034 | $7,086 | $1,635 | $40.88 |
| Minnesota | $84,701 | $7,058 | $1,628 | $40.72 |
| New Jersey | $84,624 | $7,052 | $1,627 | $40.68 |
| Oregon | $84,529 | $7,044 | $1,625 | $40.64 |
| Indiana | $83,728 | $6,977 | $1,610 | $40.25 |
| West Virginia | $83,012 | $6,917 | $1,596 | $39.91 |
| North Dakota | $82,990 | $6,915 | $1,595 | $39.90 |
| Texas | $82,925 | $6,910 | $1,594 | $39.87 |
| Pennsylvania | $80,656 | $6,721 | $1,551 | $38.78 |
| Wisconsin | $80,083 | $6,673 | $1,540 | $38.50 |
| Ohio | $79,349 | $6,612 | $1,525 | $38.15 |
| Colorado | $78,656 | $6,554 | $1,512 | $37.82 |
| South Dakota | $78,609 | $6,550 | $1,511 | $37.79 |
| Iowa | $78,227 | $6,518 | $1,504 | $37.61 |
| South Carolina | $77,390 | $6,449 | $1,488 | $37.21 |
| Utah | $76,962 | $6,413 | $1,480 | $37.00 |
| New Mexico | $75,985 | $6,332 | $1,461 | $36.53 |
| Arkansas | $75,825 | $6,318 | $1,458 | $36.45 |
| Alabama | $75,457 | $6,288 | $1,451 | $36.28 |
| Kansas | $74,530 | $6,210 | $1,433 | $35.83 |
| Kentucky | $74,209 | $6,184 | $1,427 | $35.68 |
| Florida | $73,984 | $6,165 | $1,422 | $35.57 |
| Mississippi | $73,893 | $6,157 | $1,421 | $35.53 |
| Michigan | $73,768 | $6,147 | $1,418 | $35.47 |
| Missouri | $71,880 | $5,990 | $1,382 | $34.56 |
| Illinois | $71,694 | $5,974 | $1,378 | $34.47 |
| Georgia | $69,513 | $5,792 | $1,336 | $33.42 |
| Louisiana | $67,543 | $5,628 | $1,298 | $32.47 |
| North Carolina | $64,876 | $5,406 | $1,247 | $31.19 |
Data from ziprecruiter
How is Commission Discussed with Realtors?
Often, real estate buyers and sellers don’t know how to bring up the matter of commission. Don’t worry! Every seller’s agent is used to discussing real estate commission with their clients. But you should get every detail squared away before beginning your real estate project and before you sign the listing agreement. After signing, it may be too late.
What Commission Percentage are Realtors Expecting?
With the many options of traditional real estate brokers to flat fee to discount or low cost brokers the Realtors expectation can vary. If you are selling a property, simply ask your agent or broker what commission they expect. That is usually how agents sort it out with their clients. The response will tell you a great deal and give you perspective on what to expect.
Ask your real estate agent how they handle commission
For home buyers, ask your real estate agent how they handle commission and if you can expect sellers to cover the cost of hiring a Realtor. Don’t be shy to get the details hammered out so that you can confidently proceed with your home-buying process.
