Real Estate Commission For Buyers And Sellers: Who Pays Agent Fees?

Real estate agents do a lot of work to help facilitate a successful sale or purchase for their clients. This includes pricing homes, marketing listings, preparing paperwork, negotiating and generally shepherding their clients through the processes of buying or selling a home.

So, what price do you pay for all these services? Let's take a look at how real estate commission typically works.

What Is A Real Estate Commission?

When you enlist the help of a real estate agent or REALTOR^® (a member of the National Association of REALTORS^®, the main trade organization for real estate professionals) to buy or sell a home, they get paid a commission based on the price of the house.

Real estate commissions can vary by location and brokerage. In most cases, the total agent commission is about 5% – 6% of the home's sale price, split between the buyer's agent and the listing agent.

Buyer’s Agent Commission Vs. Listing Agent Commission

Buyer's agents represent the buyer, helping them find a home that suits their needs and budget, negotiating on their behalf and guiding them through the closing process.

Seller's agents, more commonly called listing agents, represent the seller, helping them price and market their home to attract buyers.

In a typical real estate transaction, the buyer's agent and the listing agent split the total commission evenly. This means that both agents usually earn 2.5% - 3% when they help a client successfully sell or buy a home.

Brokerage Commission

The full commission typically doesn't go directly into the agent's pocket. Unless they have their own broker's license, real estate agents have to work under a licensed real estate broker. Real estate agents also have to be licensed but have to get additional training to become brokers and can work independently. 

The commission is actually paid to the agents' brokers. So, in a transaction with a commission of 6%, 3% goes to the listing agent's broker, and the other 3% goes to the buyer's agent's broker. Then, each broker will split the commission with their agent. A 50-50 split is standard but it can vary. Continuing with our 6% example, out of a commission of 3%, the broker would get 1.5%, and the agent would get the remaining 1.5%.

Commission Split Example

Jenny is the listing agent on a home that George is helping his client purchase. The house is listed for $300,000, and Jenny is offering a 6% commission to be split evenly between her and the buyer's agent.

Once the sale goes through, the total commission amount will be $18,000. Of this commission, $9,000 goes to Jenny's brokerage, and $9,000 goes to George's brokerage.

Jenny's brokerage offers its agents a 60-40 split on commissions earned. This means that agents get 60% of their commission, and the remaining 40% goes to the brokerage. So when all is said and done, Jenny will have earned $5,400. 

George's brokerage splits commission 50-50 with its agents: 50% to the agent and 50% to the broker. Once the transaction is complete, George will have earned $4,500 out of a total commission of $18,000.

Average Real Estate Commission

Though real estate agent or REALTOR^® commissions are typically between 5% – 6% of the sale price, there are a few situations where this percentage might vary.

Location

Real estate industry standards and customs vary a bit depending on where you live, including commission amounts. Let's see some examples from around the country:

Negotiation

You can try negotiating with your agent to see if they'd be willing to lower their commission amount, but you might find this difficult. 

The Consumer Federation of America study on real estate commissions found that only 27% of respondents were willing to negotiate their commission. 

Consider the commission split example above. Though commission is a significant expense, individual agents only get a small piece. When you factor in taxes and other costs they have to pay, they might not have much wiggle room left.

Dual Agency

Sometimes, an agent will represent both the buyer and the seller in a single transaction. This is known as dual agency.

In these cases, an agent might be more willing to lower their commission amount since they don't have to split it with another agent. However, this practice is illegal in a few states.

Low Commission Brokerages

Low commission or discount brokerages might sound appealing if you're looking to save money. These brokerages offer to sell your home for as little as 1% – 2% in commission. Or sometimes they'll offer their services for a flat fee.

This can be beneficial but do your due diligence and ensure you understand what services the brokerage will provide and what other costs you may have to pay. For example, even if a listing brokerage accepts a 1% commission, you may still be on the hook for the 3% buyer's agent commission.

Expected Commission By Sale Price

Here's a breakdown of how much money your real estate agent stands to make based on your home’s sale price.

Real Estate Agent Commission FAQs

Here are some of the most common questions about real estate commissions.

Who pays real estate agent commission?

The seller often pays real estate agent commissions from the proceeds they earn on their home sale as part of their closing costs.

Are real estate commissions tax deductible?

Yes! Sellers can deduct the commission from the capital gains they make from selling their home. This reduces your taxable income and can save you hundreds or even thousands of dollars.

The Bottom Line: With Commission, You Pay For A Valuable Service

Most of us aren't real estate experts. Since selling a home can be complex and time-consuming, having a professional doing the heavy lifting for you is not a bad idea.

Ready to start your home selling journey? Connect with an agent today!