Real Estate Agent Commissions | Complete Guide | REthority (2023)

Real estate agent commissions are tricky. Who pays them? And what is the average rate? Are they negotiable? We’ll answer all this and more in our complete guide.

Disclaimer:REthority is supported by ads and participation in affiliate programs. We may earn a commission when you click our links.The information included in this post is for informational purposes only and should not be taken as legal or financial advice.

Jump to:
  • What Is a Real Estate Commission?
  • Average Commission Rates
  • How They Are Split
  • What Commissions Cover
  • Who Pays Real Estate Agent Commissions?
  • Who Pays Closing Costs?

What Is a Real Estate Commission?

In sales, agents often earn a commission, or a percentage of the total sale, instead of a salary or flat fee. Whether the item being sold is software or a home, the principle of commission remains the same.

Commissions cover a salesperson’s work and time. Because they’re not a set salary, they can motivate a person to make more sales. The more homes that are sold, the more money an agent can make.

This concept is what puts real estate agents in charge of their own success.On the other hand, commissions can be intimidating for new agents who are just getting into real estate.

Real Estate Agent Commissions | Complete Guide | REthority (1)

Many new agents will continue to work outside of real estate part-time until their commissions are enough to support them full-time.

When a real estate agent works with a client to help them buy or sell property, they earn their commission from the total purchase or sale price.

These commissions pay for real estate agent’s time and expertise in a transaction. Agents are only paid after the transaction (sale or purchase) is completed.

Commission rates are not set or regulated by law, but there are industry norms that agents follow to charge a fair commission. We’ll look at those average rates next.

Average Real Estate Commission Rates

Average real estate commissions are about5-6% of the final sale price.That equates to:

  • About $7,500 commission (pre-split) selling a $150,000 home
  • About $15,000 commission (pre-split) selling a $300,000 home

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Ninamalyna/Shutterstock

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Consider the amount of time, work, and expertise that goes into a real estate transaction. The average real estate transaction takes about50 days to close. That’s nearly 2 months of work for an agent.

About 5% commission is average, but sellers might pay a higher or lower commission when:

  • Selling land or property that is vacant. These sales average a10% to 20% commissionbecause they’retypicallyon the market much longer than homes.
  • Engaging the realtor in a transactional agreement for a lower commission. Transactional agreements don’t include the realtor’s full services, but help a seller list the home, communicate with buyers, and write contracts for closing.

Managing the transaction from start to finish, real estate agents and realtors work long hours marketing the listings, handling appointments, showings, deadlines, inspections, contracts, phone calls, and negotiations with their clients.

How Is Commission Split?

Commissions don’t usually go entirely to one agent (except in the case of dual agency – more on that below). Typically, the total commission is split 50/50 between both agents involved in the transaction.

So that $7,500 commission from a $150,000 home sale would become $3,750 in take-home pay for the buyer’s agent and the listing agent.

Exceptions include:

  • New agents may take a lower percentage of the total commission
  • Outside agents that refer a buyer may earn a portion of the commission (about 25%)
  • Dual agency rules in some states allow an agent to represent both the buyer and the seller, keeping the entire commission without splitting it

New agents might take a smaller percentage of the home sale if the more experienced agent did more work, facilitated the process more, or the brokerage has rules about commissions and seniority.

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Lightspring/Shutterstock

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For example, they may choose to split the commission 60/40 or 70/30, with the lower amount going to the new agent.

If another real estate agent brings a buyer in, the listing broker will pay a percentage. This would be 25% or so of the total agreed commission to that agent or broker as a referral fee.

In a dual agency transaction, an agent can represent both the buyer and the seller during a real estate transaction, but they must disclose their dual agency to both clients.

This is tricky because the agent has to act in the best interest of the buyer and the seller. It doesn’t always work out. There are always conflicts of interest at some point in the sale.

In some states, dual agency is illegal. Right now, those states are Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont.

If an agent can legally practice dual agency and make both parties happy during the process, they’ll be rewarded with a full 5-6% commission.

What Does the Commission Cover?

With the total commission amounts in mind, what specific real estate services is it covering? This is a partial list of the services a real estate agent provides during the listing and sale of a home or property.

  • Determining the best listing price for the home
  • Recording all property features and creating a sales description
  • Listing the home in the MLS
  • Arranging professional photos of the property to be taken
  • Marketing the listing to potential buyers
  • Negotiating with the buyer’s agent to get the seller the best sale price
  • Guidance through contracts, financial details, lender information, etc.
  • Ordering needed inspections and services
  • Liaising with the title company
  • Coordinating all appointments, meetings, and contract information
  • Availability for phone calls, meetings, emails, and text messages

A buyer’s agent’s services are a bit different, with more focus on showing homes, negotiating with listing agents for the best deals, and guidance throughout the process.

They also coordinate and schedule all needed meetings, and make themselves available for phone calls, texts, emails, or meetings when the buyer needs.

Who Pays Realtor Commissions?

Commission fees are usually paid by the home seller, not the home buyer. This is taken out of the total sales price of the property. The 5-6% commission covers both their listing agent (seller’s agent) and the buyer’s agent.

In most cases, the buyer will be spending a lot of money on the purchase of a home, closing costs, down payments, moving, etc. The seller is often in a more favorable position to cover the commission cost because they’ve just sold a home.

The seller takes the commission out of the total sale price they manage to bring in and does not pay it before the sale of the home has been completed.

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Who Pays Closing Costs?

The seller isn’t the only party responsible for paying up. Most of the time, the buyer pays closing costs, which equate to 2-5% of the total purchase price.

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Olivier Le Queinec/Shuttersck

Closing costs and down payments are the two biggest financial obstacles for buyers because they have to be produced out-of-pocket.

Most mortgages won’t allow buyers to include closing costs in the total loan amount, making it a challenge to come up with up to 5% of the total purchase price at closing.

When a Seller Pays Closing Costs

There is an exception to the buyer paying closing costs, but it’s rare: Getting the seller to pay the closing costs. Typically, if the seller is to be negotiated into covering these costs, it will be at the expense of the buyer agreeing to pay a higher dollar amount for the home.

Since that amount is added to the loan amount, the buyer has less cash to pay out-of-pocket. The seller gets additional cash to cover the closing costs and benefits from a higher sale price than expected.

Here’s an example:

The buyer will owe 3% closing costs on a home priced at $150,000. That equates to $4,500 in closing costs, so the buyer negotiates with the seller.

The buyer offers $155,000 for the home in exchange for the seller paying the closing costs out of the sale price (this must be in the final contract).

The buyer benefits by not needing nearly $5,000 in cash at closing, but the drawback is the monthly mortgage payments will be a bit higher due to the increased purchase price.

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FSBO Commissions

Homes that are listed For Sale By Owner don’t have agents involved at all, so the seller can avoid paying any realtor fees or commissions to an agent. There are 2 main problems with this arrangement, though:

  1. Very few FSBO homes sell (they account for just 7% of last year’s home sales).
  2. FSBO homes sell for a lower amount. The average FSBO listing sells for$185,000; the average agent-represented home sells for $245,000.

If the seller is truly concerned about paying the agent commission, negotiating the commission rate is always possible. It will likely have better results than trying to sell the home without an agent.

Real Estate Commission Overview

Real estate agent commissions are the way hard-working agents get paid after a month-or-longer process helping a client sell or buy a home.

Some of the key takeaways include:

  • Agents should expect to split an average 6% commission with the other party’s agent (selling agent or buyer agent) at closing.
  • If the property is a vacant lot or land, a much higher commission can be earned — up to 20% of the total sale price.
  • Most of the time, the seller pays the commission from their total proceeds. Closing costs, on the other hand, are most often paid by the buyer and represent about 2-5% of the total sale price of the home.
  • Those commissions cover the agents’ time and expertise in real estate, including preparing the house for photos, and listing the property in the MLS.
  • They also cover marketing the listing widely, managing and guiding the contract and closing process, locating a lender, and more.

Exceptions to these commission norms include FSBO sellers and who don’t pay any commission to an agent and choose to manage the process themselves.

After all, there are special negotiations that have the seller pay for closing costs in exchange for a slightly higher purchase price.Real estate agents bring a lot of valuable expertise and knowledge to the complex process of buying or selling a home.

They’re paid with commissions only after closing on a property, so there can be up to 2 months of work involved. It can be a challenge to give 6% of the sale price of the home out of a seller’s profit to cover real estate agent commissions.

Should You Use a Real Estate Agent?

It may be tempting to avoid paying a real estate agent’s commission and sell the home FSBO. But as statistics show, the home isn’t as likely to sell at all or for a fair price without the help and guidance from an experienced agent.

If you are serious about selling your house effectively and for the best price, you should hire an experienced agent with a good reputation.

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FAQs

What percentage do most realtors charge? ›

Nowadays, real estate commissions can be negotiated, and they typically run about 5 percent to 6 percent of a home's sale price. The exact terms of an agent's commission vary from sale to sale, and can depend on the region and which firm they work for.

What is a 60/40 commission split? ›

The commission is 6% of the sales price, which is $21,000. This gross amount is split between the seller and buyer's agent, with each representative receiving $10,500. Then, the 60/40 split is enacting for each agent, leaving the broker with 40% ($4,200) and the agent with 60% ($6,300).

How much do top 10% Realtors make? ›

The lowest 10% of earners made less than $25,000, while the highest 10% of earners made more than $112,000.

What is the lowest commission a realtor will take? ›

But a low commission agent can charge as little as 1% to list your home. That's over $7,000 in savings on the median home price of $428,000. Selling a house can be an overwhelming experience. A realtor can make the process easier to handle, but then they charge you a 3% commission fee.

Should I tell my Realtor my max price? ›

Indeed, revealing your max budget may backfire on you. "An agent could start showing you homes that are way out of your range. Or your agent may pressure you to make offers when you are not ready," says Benjamin Ross, Realtor with Mission Real Estate Group in San Antonio, Texas. "If this happens, fire your agent.

What is Keller Williams commission split? ›

Keller Williams has a competitive split structure for real estate agents. They offer a 70-30 split. Meaning, 70 percent of the commission will go to the real estate agent and 30 percent will go to the brokerage. In addition, a real estate agent will pay a six percent franchise fee for each transaction up to $3,000.

Is 30% commission a lot? ›

The average in sales, though, is usually between 20-30%. What is a good commission rate for sales? Some companies offer as much as 40-50% commission. However, these are typically sales reps that require more technical skills and knowledge, plus have a compensation structure that relies more heavily on commission.

Is 5% a good commission? ›

The industry average for sales commission typically falls between 20% and 30% of gross margins. At the low end, sales professionals may earn 5% of a sale, while straight commission structures allow a 100% commission.

Is 3% commission a lot? ›

No. In fact, many realtors charge less than the standard 3% listing fee. The average real estate commission rate in 2022 is 5.37%. This fee is split between the two agents — often down the middle — which means each realtor earns around 2.72% of the sale price on each transaction.

Where do Realtors make the most money? ›

10 States Where Real Estate Agents Earn The Most Money
RankState2017 Mean Annual Wage
1New York$102,310
2Texas$72,480
3Hawaii$72,470
4Alaska$71,030
6 more rows
28 Jan 2019

What type of Realtors make the most money? ›

Real Estate Broker

A career as a real estate broker is one of the highest paying and lucrative professions in the real estate industry. On average, experienced brokers take home a six-figure pay. You can only achieve this number once you get a significant amount of good reputation.

How are realtors so rich? ›

There are two primary ways for real estate agents to get rich. The first way is to build a business with value that can be sold for an attractive price. The second way is to focus on converting commission income into wealth.

What is the most common commission for a realtor? ›

Throughout the United States, the average realtor commission is 5.49% (which includes both buyer's and seller's agent fees), but costs vary by state. In general, the typical realtor fee will be 2.5-3% per agent.

How do you negotiate commissions? ›

Jump to a negotiating tip
  1. Evaluate your negotiating leverage.
  2. Find your area's average commission rate.
  3. Shop around for the best value.
  4. Make your house easier to sell.
  5. Create value for the agent.
  6. Offer a full buyer's agent fee.
  7. Work with an up-and-comer.
  8. Sell and buy with the same agent.
17 Oct 2022

Do estate agents take a percentage? ›

As mentioned, estate agents usually charge a percentage fee. This will be a different figure depending on the type of contract you opt for with your estate agent. Read our guide on Estate Agent Contracts.

What should I not tell a real estate agent? ›

  • 10: You Won't Settle for a Lower Price. Never tell your agent you won't reduce the sale price on your house. ...
  • 6: You are Selling the Home Because of a Divorce. " ...
  • 5: You Have to Sell Because of Financial Problems. " ...
  • 2: You're Interested in a Certain Type of Buyer. " ...
  • 1: Anything -- Before You've Signed an Agreement. "
10 Feb 2021

How do you know if your realtor is doing a good job? ›

Below we discuss 3 signs that you have a good realtor:
  1. Communication. A good realtor has good communication skills. A realtor who communicates without flaws has the power to influence. ...
  2. Knowledgeable. Good agents possess market knowledge. The knowledge of the market makes them responsive and available. ...
  3. Resourcefulness.

What should you not tell an estate agent when viewing? ›

Talking you out of the best deal

Play your cards close to your chest. Never let the estate agent know your bottom line (if you're selling) or your maximum budget (if you're buying). Otherwise the chances are you'll end up having to settle for it.

Who is Keller Williams biggest competitor? ›

Keller Williams competitors include Zillow, RE/MAX, Coldwell Banker, Realty ONE Group and KKR. Keller Williams ranks 1st in CEO Score on Comparably vs its competitors.

What is Coldwell Banker commission split? ›

Like all real estate agents, Coldwell Banker agents receive a commission on every transaction, either as a buyer's agent or a seller's agent. Sellers will pay 6% of the final sale price of their home in commissions, which are split 50/50 between the buyer's agent and seller's agent.

How much does a top Keller Williams agent make? ›

How much does a Real Estate Agent make at Keller Williams Elite in the United States? Average Keller Williams Elite Real Estate Agent yearly pay in the United States is approximately $105,221, which is 16% above the national average.

What are the 3 types of commission? ›

COMMISSIONS
  • COMMISSIONS. Straight | Graduated | Piecework | End of Page.
  • Straight Commission. Straight Commission is calculated to be the person's wage based solely on sales. ...
  • Graduated Commission. Graduated Commission is calculated into a person's pay in addition to his/her regular salary or wage. ...
  • Piecework Commission.

What are good commission prices? ›

PUBLISHED CREATORS – TRADITIONAL
HIGHESTLOWEST
SKETCH$80$15
BLACK & WHITE$200$20
FULL COLOUR$300$40
BUST$120$12
1 more row
3 Sept 2019

What is a fair amount of commission rate for sales? ›

I have known sales agent commission rates to vary from 1% to 150%(!), although it's fair to say that the average is in the region of 10%-25%. Note: Sales agents used to be known as 'ten percenters'.

Is 20% commission a lot? ›

What is a typical commission? The typical commission depends on what is being sold. For manufactured goods, the commission rate tends to be around 7-15% of the sale value. The commission on services tends to be much higher, being between 20 - 50%.

Is 2% a good commission? ›

Working with a 2% commission realtor is a good option for most home sellers. Brokerages that offer 2% listing fees typically provide the same level of service as realtors who charge standard 2.5-3% commission rates.

What is a 5% commission of $2000 in sales? ›

So if a salesperson sells a total of $2,000 of product and receives 5% in commission, they make $100.

Is commission paid on gross or net sales? ›

The commission is usually based on the total amount of a sale, but it may be based on other factors, such as the gross margin of a product or even its net profit.

Is 100% commission based Good? ›

100% commission means that you only get paid if and when you sell whatever product or service your company offers. 100% commission can be great if your company makes a great product or provides a great service; and it is an amazing value to clients who want what you are selling.

What do most Realtors make their first year? ›

How Much Does a First-Year Real Estate Agent Make? If you've heard that real estate can be a lucrative career path, you've heard right. According to Indeed, the average salary is just over $83,000 for first-year full-time agents — but this rate can vary greatly.

How do new Realtors make money? ›

6 Ways to Make Money with a Real Estate License
  1. Become a referral agent.
  2. Create a downline.
  3. Invest in real estate.
  4. Represent yourself.
  5. Become a broker.
  6. Leverage your credentials.
25 Nov 2021

How much do most Realtors make on a sale? ›

Real estate agents make a commission on each home they successfully sell. That commission is generally around 5-6% of the sales price. But one agent won't necessarily pocket the entire 5-6%. Real estate agent commissions are often split 50/50 between the seller's agent (or “listing agent”) and the buyer's agent.

What is the best position in real estate? ›

14 high-paying real estate jobs
  1. Real estate manager. National average salary: $51,497 per year. ...
  2. Property manager. National average salary: $52,273 per year. ...
  3. Real estate associate. ...
  4. Home inspector. ...
  5. Escrow officer. ...
  6. Foreclosure specialist. ...
  7. Real estate appraiser. ...
  8. Real estate investment consultant.

Is real estate a good career in 2022? ›

If you're thinking about real estate as a career, you should be thinking beyond just the next two years. Real estate has literally been around forever and will still be here when we are gone. Therefore, the career choice of becoming a real estate agent is a good one in 2022 or any other year.

What is the fastest way to make money in real estate? ›

  1. 7 Fastest Ways to Make Money in Real Estate. ...
  2. Renovation Flipping. ...
  3. Airbnb and Vacation Rentals. ...
  4. Long-Term Rentals. ...
  5. Contract Flipping. ...
  6. Lease to Buy. ...
  7. Commercial Property Rentals. ...
  8. Buying Land.

How many houses do I need to sell to make 100k? ›

How many houses does an agent have to sell to make $100,000 a year? If you are selling $100,000 houses and paying 40 percent of your commission to your broker you would have to sell over 50 houses a year to gross $100,000 a year. That is a lot of houses to sell, especially for a new agent.

Do attractive Realtors make more money? ›

Researchers looked at listing prices, sales prices and the time properties spent on the market before the sale was completed. In general, the research found that the agents who were rated more attractive had listings with higher prices and larger commissions, which comes from higher sales prices for attractive agents.

Do Realtors become millionaires? ›

About 90% of the world's millionaires over the last 2 centuries have come from real estate. So that's a resounding yes! For many investors, real estate offers a great opportunity to build wealth and create a large profit on each deal.

› blog › how-much-mone... ›

WARNING: The numbers may shock you. How Much Do Real Estate Agents Make? The average Agent likely makes a lot less money than you think - Written by a 30 under ...
Key Takeaways · Real estate agents' earnings range quite a bit, from a modest $25,000 or less to more than $1 million annually. · Agents' ...
Most salary surveys will tell you that the average salary for a real estate agent in the U.S. is just $40000 a year.

What is a realtor's commission in Alabama? ›

The fee is a percentage of the sale price and is typically covered by the seller. Commission fees vary by state, and it's important to know the range of commission fees in your area so you can accurately calculate the cost. In Alabama, the average commission of a realtor's service is 5.61%.

What is a realtor's commission in Virginia? ›

According to a survey of Virginia agents, the average real estate commission in Virginia was 5.23% of the sale price in 2021. But this number can also vary.

What is the most common commission for a realtor? ›

Throughout the United States, the average realtor commission is 5.49% (which includes both buyer's and seller's agent fees), but costs vary by state. In general, the typical realtor fee will be 2.5-3% per agent.

What is NJ real estate commission? ›

Established in 1921, the New Jersey Real Estate Commission (REC), a division of the New Jersey Department of Banking and Insurance, was created to administer and enforce New Jersey's real estate licensing law, N.J.S.A. 45:15-1 et seq.

How much does a realtor make in Alabama? ›

Below are all 50 states and how much real estate sales agents earn a year on average.
...
January 29, 2019.
StateAlabama
2017 Mean Annual Wage$55,960
2016 Mean Annual Wage$58,700
2015 Mean Annual Wage$61,130
1-Year Change-4.70%
49 more columns
29 Jan 2019

How much does it cost to renew real estate license in Alabama? ›

License Renewal: $185 for Salesperson; $205 for Broker

License renewal takes place every two years. Alabama real estate license renewal fees vary based on what type of license you're renewing. It costs $185 to renew a salesperson license, and $205 to renew a broker license.

What percentage do most realtors charge for land? ›

Real estate agents make their living on commission. The typical agent will charge a 3% commission for selling a home. But, when it comes to selling vacant land, the typical commission is a whopping 10%! This commission drives up the price of your property – and a higher price means your land takes longer to sell.

Are real estate commissions negotiable in Virginia? ›

Yes, realtor fees in Virginia are negotiable. Although many realtors refuse to lower their rates, you can always try to negotiate. However, you'll likely have more success getting a lower rate by working with a low commission real estate agent or broker.

How much does a realtor make in Virginia? ›

As of Oct 30, 2022, the average annual pay for a Real Estate Agent in Virginia is $98,734 a year.

Do buyers pay realtor fees in Virginia? ›

Who pays realtor fees in Virginia? In Virginia, home sellers pay real estate commission fees out of the final sale proceeds for both agents involved in a deal. Offering to pay for the buyer's agent's commission is an incentive for agents to show your home to their clients.

What is the most common type of commission? ›

One of the most common sales commission structures is a base rate plus commission on every sale. Some companies provide an hourly rate as the base, while others stick to a straight salary. This model puts responsibility on both the company and the sales rep.

What type of realtor makes the most money? ›

Real Estate Broker

A career as a real estate broker is one of the highest paying and lucrative professions in the real estate industry. On average, experienced brokers take home a six-figure pay. You can only achieve this number once you get a significant amount of good reputation.

Is it common to negotiate Realtor commission? ›

Commissions are always negotiable; that's the law. “A home seller can negotiate when they have a property that is move-in ready, updated, or high-end,” says Kevin Lawton, a real estate agent with Coldwell Banker in Bordentown, NJ.

How much does the average NJ Realtor make? ›

As of Oct 28, 2022, the average annual pay for a Real Estate Agent in New Jersey is $84,959 a year.

How much a Realtor makes in NJ? ›

On average, real estate agents make $84,459 per year according to salaries reported by Indeed users.

Are real estate commissions negotiable in NJ? ›

Typically most commissions in New Jersey are between 5-6 % of sales price, depending on the discussion with seller, motivation to sell quickly or the property itself. Each real estate company follows their policy and threshold, but it is negotiable according to the state law.

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