If you are looking to buy or sell a home, it is likely that you will be working with a real estate agent who will guide you through the entire process.
The majority of real estate brokers are compensated for their services with a percentage of the property’s sale price.
The number of deals an agent completes, the commissions they earn, and the amount of compensation they receive from their sponsoring broker are just a few of the variables that affect how much money an agent makes annually.
What Percentage Do Real Estate Agents Make?
Are you wondering, what percentage do real estate agents make?
Here’s a summary of how real estate agents are paid and how much they earn.
Summary
Currently, 5.37% of a home’s final sale price is used as the national average for real estate commissions.
This fee is usually split equally between the listing and the buyer’s agents who process the transaction and comes from the seller’s proceeds.
Disagreements Surrounding Real Estate Commissions
If you are selling your home, realtor fees will make up the bulk of your expenses. Because of this, consumer advocates argue that real estate commissions are both too expensive and too confusing in their current structure.
In addition, although commissions can theoretically be discussed, real estate agents are often reluctant to make concessions about commissions and try to avoid answering the question directly.
In a survey of 200 agents, the Consumer Federation of America found that 73% of agents said they would not discuss their commissions.
Change Is Coming To Real Estate Commissions
Fortunately for consumers, the old commission model seems to be on the verge of radical change.
Class action lawsuits, antitrust lawsuits, and new business models in real estate are changing the percentage that realtors typically receive from sales.
Real Estate Agent vs. Broker vs. Realtor
Once you understand the relationship between agents and brokers, this helps answer the question, “What percentage do real estate agents make?”
Real estate agents are salespeople licensed to work under the auspices of a designated real estate broker who makes sure agents comply with state and national real estate laws.
Agents are not allowed to work on their own and cannot take commissions from clients directly.
Independent Brokers Hire Real Estate Agents
Independent brokers use real estate agents as their employees.
There is one authorized broker for each real estate office.
Every commission must be paid directly to the broker, who then distributes it to any agents who worked on the deal.
Both real estate agents and brokers may hold the title of realtor if they are members of the National Association of Realtors (NAR) and subscribe to its code of ethics.
How Real Estate Commissions Work
Broker’s Compensation Agreement
The listing broker and the seller sign a listing agreement that specifies the listing’s terms, including the broker’s compensation, which is often a commission, when a property is put up for sale.
It is important to note that the commission is always negotiable.
Standard Commission Rates Are A Violation of Federal Law
In reality, real estate agents who attempt to impose standard commission rates, however subtly, are in violation of federal antitrust law.
With that said, there are average figures that answer the question, “What percentage do real estate agents make?”
Average Real Estate Commission Rates
Commissions are usually between 5% and 6% of the final sale price, although they can be higher or lower depending on market conditions.
If the buyer and seller do not agree on a split, the commission is paid by the seller.
One could argue that the buyer always pays at least a small amount of commission because the majority of sellers include the commission in the asking price (through the higher purchase price).
Both the seller’s agent and the buyer’s agent have agreements with their sponsoring brokers that specify the agent’s commission.
This can be a 50/50 split between the broker and the agent or any other split of their choice.
How Commissions Are Divided
When you ask the question, “What percentage do real estate agents make?” there is an important point to consider.
It’s that several people frequently share real estate commissions.
In a typical real estate transaction, the commission is divided into four parts:
- Listing Agent – The agent who accepted the listing from the seller.
- Listing Broker – A broker who employs a listing agent for a seller.
- Buyer’s Agent – An agent who represents the interests of the buyer
- Buyer’s Agent Broker – A broker who hires a buyer’s agent
Why Do Commission Rates Vary?
While national averages reflect trends in real estate commissions, they don’t tell the whole story.
So, what percentage do real estate agents make when rates vary?
The average total commission in Nevada is 5.02%, which is less than the national average of 5.37%.
No matter where you live, we advise speaking with several agents and looking into firms with low commissions to find the finest service at the lowest cost.
Real Estate Commissions, Judging By The Numbers
To better answer the question, “What percentage do real estate agents make?” suppose you sold your house for $250,000.
At the traditional 6% commission rate, you would pay $15,000 in commission fees. Your listing agent would split that fee with the buyer’s agent, so each would get $7,500.
Now let’s compare that to what you would pay a real estate agent with a low commission.
If you paid 4% commission (1% listing fee plus 3% buyer’s agent fee), the total would be $10,000.
You would have saved $5,000!
Who Pays Realtors?
Traditionally, the seller pays a full commission to their listing agent.
The answer to the question, “What percentage do real estate agents make?” will be described in your listing agreement (the contract you sign with your agent).
The listing agent will then split part of the commission—usually half—with the buyer’s agent.
In most cases, both agents share part of their commission with their brokers.
Why Does A Seller Pay A Buyer’s Agent Commission?
Offering a competitive buyer’s agent commission is an important way to draw attention to your listing.
Think of it this way:
If you plan to pay less than the typical buyer’s agent commission of 2.19% to 3.17%, local realtors may be less motivated to show your home to their clients.
After all, they could make less money on the sale!
Let’s Calculate What Percentage Do Real Estate Agents Make
On paper, listing agents make between $8,046 and $11,286 from the average home sale, while a typical buyer’s agent’s commission ranges from $7,797 to $11,286.
However, the average realtor’s salary per home in the United States is only about $5,977.
Obviously, this is much less than the commission you will pay at closing.
Agents Pay A Portion of Their Commission After The Sale Closes
Most real estate agents work through brokerage companies such as Keller Williams, Coldwell Banker, or RE/MAX.
Because brokerage companies cover certain overhead costs, agents are required to pay them a portion of their commission after the sale closes.
The agent’s exact take-home pay depends on the agreement they have with their broker.
Generally, more experienced agents retain a higher percentage of their commissions than less experienced agents.
An Example of A Real Estate Commission
Want to know what percentage do real estate agents make when a broker earns a deal? Check out the example below.
Example
Let’s say an agent takes a listing on a house worth $200,000 with a commission rate of 6%. That equals a total commission of $12,000.
If the house sells at the asking price, the real estate broker and the buyer’s agent broker get a 50% commission or $6,000 each ($200,000 sales price x 0.06 commission ÷ 2).
Brokers then divide their commissions with their agents.
The usual commission split gives 60% to the agent and 40% to the broker, but the split can be 50/50, 60/40, 70/30, or any other ratio agreed upon by the agent and broker.
Generally, the more experienced and better-paid agents get a higher percentage of the commission.
In our case, a 60/40 split results in each agent receiving $3,600 ($6,000 x 0.6), while each broker keeping $2,400 ($6,000 x 0.4).
The final commission breakdown would be as follows:
- Real estate agent: $3,600
- Real estate broker: $2,400
- Buyer’s agent: $3,600
- Buyer’s agent broker: $2,400
Real Commissions Are Split In Different Ways
However, there are cases where commissions are split between fewer parties.
For example, if a broker lists a property and finds a buyer, that broker will keep the full 6% commission (or whatever rate is specified in the listing agreement).
Or, if a real estate agent sells the property, acting as an agent for both the seller and the buyer, that agent will split the full commission with his or her sponsoring broker.
If the commission is $12,000, as in the previous example, the broker keeps $4,800, and the agent gets $7,200 (with the same 60/40 ratio).
Of course, as in other professions, the agent’s income is reduced by taxes and business expenses.
Federal, state, and self-employment taxes, as well as business expenses – insurance, fees, multiple listing service fees (MLS), and advertising, end up taking a large portion of the agent’s commission.
How Much Do Real Estate Agents Make?
Indeed.com in 2022 reported that the annual salary for real estate agents ranges from $85,597 to $112,309, depending on years of experience.
According to the latest data from the U.S. Bureau of Labor Statistics, the average annual salary in 2021 was $48,770.
For brokers, the average annual salary was $86,490.8.
Of course, there are no strict limits on what percentage do real estate agents make.
Brokers and real estate professionals might earn significantly more.
The top 10 percent of agents earned more than $102,170 in 2021, while the top 10 percent of brokers earned $176,080.
Commissions When A Sale Does Not Close
Commissions are generally not paid until after the sale closes.
Even if the sale does not close, there are circumstances in which the seller is theoretically responsible for the broker’s commission.
Frequently, the provisions defining this requirement are stated in the listing agreement.
This situation is rare, but it can happen.
For example, if the broker has an offer from a buyer who is willing and able to make a purchase, but the seller does any of the following:
- Decides not to sell after all
- Has a spouse who does not sign the contract (if that spouse has signed the listing agreement)
- Has a title that contains uncorrected defects
- Fraudulently affects the transaction
- Fails to provide possession to the buyer in a timely manner
- Demands terms that aren’t listed in the listing agreement
- Mutually decides to end the deal with a buyer
Important: Listing agreements vary, and each is negotiated individually. They may include contingencies that require the seller to pay a commission, even if the home does not sell.
Can You Negotiate Realtor Commissions?
In theory, realtor commissions can be negotiated. You can talk to your agent about the situation. But in practice, agents are often reluctant to lower their rates.
There are a few situations that will give you a better chance of negotiating a commission:
- Buying and selling with the same agent
- Agreeing to double agency
- Selling in a thinly populated, very competitive seller’s market.
- In the first two cases, one agent will be able to charge both the listing fee and the buyer’s agent commission. Since the agent wants to earn more, he or she may be willing to offer a reduced rate.
Or, if you are in a very competitive market, you probably have more opportunities to negotiate better rates. However, agents don’t have to agree to your terms and may simply say no.
Summary
The majority of real estate brokers receive commissions on transactions, which is how they make their money.
A single commission is frequently allocated in multiple ways: between the listing agent, the listing broker, the buyer’s agent, and the buyer’s agent’s broker.
The allocation of commissions earned by a specific agent depends on the agreement that the agent has with his or her sponsoring broker.
