Real estate agents — both on the seller’s side and the buyer’s side — typically get paid at closing from the seller’s proceeds. The majority of real estate agents are paid via a commission vs. a set fee, which means the higher the sales price, the more money the agent gets paid.
Commissions are split evenly between the buyer’s and seller’s agents. The brokerage each real estate agent or Realtor® works for snags a portion of the commission as well. (Realtors are real estate agents who belong to the National Association of Realtors, requiring them to adhere to a certain code of ethics; we’ll use the terms interchangeably here.) Here’s an example of how a Realtor gets paid.
Real Estate Commission: An Example
Let’s say a home sells for $500,000 with a typical commission of 6%:
Total commission fee: $500,000 X 6% = $30,000
The commission is split evenly between the two sides:
• Listing agent side = $15,000
• Buyer’s agent side = $15,000
Real estate agents share their commissions with the brokers representing them. (A broker is an agent who also has an additional license to supervise other agents.) Let’s assume that the broker fee is 1% of the sales price (the broker’s split can go up to 50%, but we’ll use an easy 1% split here).
• $500,000 sale price X 1% broker’s fee = $5,000
Subtract the broker fee from the total commission and the agent ends up with the rest.
• $15,000 total commission – $5,000 broker’s fee = $10,000 agent commission
Typically, four people get paid from the seller-paid real estate commission. It may look something like this:
• Listing agent = $10,000 (2% of sales price)
• Listing agent broker = $5,000 (1% of sales price)
• Buyer agent = $10,000 (2% of sales price)
• Buyer agent broker = $5,000 (1% of sales price)
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A Real Estate Agent’s Responsibilities
To earn their commission, real estate agents often have a lot of responsibilities. Their duties include:
• Providing market data and helping to set a listing price
• Placing ads and putting up yard signs
• Photographing the property
• Listing the property in the MLS, a listings database
• Scheduling showings
• Placing lock boxes
• Guiding first-time home buyers
• Smoothing over difficult relationships
• Navigating offers and counter offers
• Negotiating home contracts
Making a living through commissions can be challenging for real estate agents, but it can also be very rewarding.
Recommended: How to Find a Real Estate Agent
Who Pays the Realtor Commission?
It is expected that the seller pays the real estate agent commission fee for both the buyer’s and seller’s agents. At settlement (also called the “closing”), the money for the commission comes out of the seller’s proceeds. If the sales price of a home is $500,000 and the sellers owe $250,000 on their mortgage, then the commission and other fees would be subtracted from the $250,000 that remains after the sellers pay off their mortgage.
How Much Are Realtor Fees?
It is common to see real estate agent commission fees between 5% and 6%. This includes both the seller’s and the buyer’s real estate agents’ fees. The money is usually split evenly between the two sides. If the commission is 6%, for example, 3% would go to each side.
Can You Negotiate Who Pays the Real Estate Agent?
The Realtor fee is negotiable, though it is extremely rare for a buyer to pay it. Some ideas to help reduce your fee if you are selling your home:
• Barter. Do you have a photographer friend who can take photos of your home? Offer up skills in exchange for a lower commission.
• Hire a newer agent. A newer agent may accept a lower commission to gain experience.
• Pay attention to market conditions. If homes aren’t moving in your market, you may be able to negotiate a lower commission.
Take time to interview potential Realtors using these suggested questions. When you’re buying a home, look for an agent with a strong network. (These agents may be the first to hear about so-called “whisper listings.”) Be sure the commission outlined in the listing agreement you sign matches what you agreed on.
How Is an Agent’s Commission Determined?
An agent’s commission is determined by the compensation agreement they have with their brokerage. As noted above, after the commission is split between the buyer’s and the seller’s agents, it’s then split again between the agent and the broker.
When Do Agents Receive Their Commission?
Agents usually receive their commission after the home mortgage loan has been funded and the sale closes. Their brokerage receives a wire with the funds and the agent’s portion of the commission is released to them shortly thereafter.
How Do the Agents Share Their Commission?
It is customary for agents to share the commission 50/50. If the listing has a 6% commission on it, 3% would go to the buyer’s agent and 3% would go to the seller’s agent.
What Is Dual Agency?
Dual agency is when a real estate agent represents both the seller and the buyer in a transaction. It must be disclosed to both parties because real estate agents are bound by a fiduciary duty to serve their clients. An agent who represents both seller and buyer will earn more commission.
Is Paying a Real Estate Commission Worth It for the Seller?
For many sellers, it’s painful to look at the closing documents and see how much of the sales price goes to different agents, title insurance companies, concessions, and so forth. But a lot of sellers like having someone to guide them through the complexities of real estate law, and sensitive issues that the sale of a home creates.
Recommended: How to Buy a House Without a Realtor
Alternatives to a Percentage-based Commission
There are real estate brokerages that advertise services for a flat fee. Usually, the flat fee is very low and may only include a listing on the MLS with photos. They usually don’t offer to schedule showings or manage the listing in any other way.
The Takeaway
Working with a real estate agent who earns a commission isn’t painful when you’re a buyer because the fee is almost always covered by the seller, and you will have an agent on your side to help you negotiate.
Another way to be money-smart when you’re buying is to get a good rate on a home loan. SoFi Mortgages offer competitive interest rates, low down payment options, and a guaranteed on-time close* (which you and your Realtor will love).
See your home loan rate in minutes.
FAQ
Do sellers pay realtor fees?
Yes, sellers pay realtor fees for both the buyer and the seller.
Do buyers pay Realtor fees in Texas?
No, the seller pays the realtor fees in Texas, with very few exceptions.
Do buyers pay Realtor fees in Washington state?
No, the seller usually pays realtor fees in Washington state, but it is negotiable.
How much does a new Realtor make in Illinois?
According to ZipRecruiter.com, the average pay for a first-year real estate agent in Illinois is $82,481. The range for first-year salaries is between $18,866 and $153,998.
Photo credit: iStock/RyanJLane
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*‡SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.
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