Understanding the Commission Structure of Real Estate Agents

6 June 2025

Real estate transactions can be complex and often involve multiple parties. One crucial player in these deals is the real estate agent, who helps buyers and sellers navigate the property market. But have you ever wondered how these agents actually make their money?

Most real estate agents work on a commission basis, meaning they don't earn a set salary but rather a percentage of the property's sale price. This structure can be confusing, especially for first-time buyers or sellers. So, let’s break it down and understand how real estate commissions work, who pays them, and whether there's room for negotiation.

What Is a Real Estate Commission?

A real estate commission is the fee that agents earn for helping clients buy or sell a home. It’s usually calculated as a percentage of the property’s final sale price. This means that the more expensive the home, the higher the commission.

Unlike typical jobs with hourly wages or fixed salaries, real estate agents get paid only when a deal closes. If a house doesn't sell, they don’t earn anything—regardless of how much time and effort they put into marketing, showing the property, and negotiating offers.

How Much Is the Standard Real Estate Commission?

There isn't a fixed, one-size-fits-all commission rate, but in the U.S., the standard real estate commission typically ranges from 5% to 6% of the home's sale price. This rate is agreed upon in the listing agreement when a seller hires an agent.

For example, if a home sells for $400,000 and the commission is 6%, the total commission amounts to $24,000. But that entire sum doesn’t go to a single agent—it's actually split among several parties.

Who Pays the Real Estate Commission?

You might be wondering, “Do buyers or sellers pay the commission?” Traditionally, the home seller covers the commission cost, which is then deducted from the proceeds of the home sale.

Here’s how it usually breaks down:

- The seller’s agent (also known as the listing agent) and the buyer’s agent split the commission.
- Each agent typically works under a broker, who also gets a cut of the commission.
- In a 6% commission deal, the listing agent and buyer’s agent might each receive 3%, with a portion of that going to their respective brokerages.

Essentially, while the seller technically pays the commission, the cost is factored into the home's price—which indirectly affects the buyer as well.

How Is the Commission Split?

Let’s go deeper into how the commission gets divided. A typical 6% commission might be split like this:

- 3% to the listing agent and their brokerage
- 3% to the buyer’s agent and their brokerage

But it doesn't stop there. Most agents don't keep the full 3% because they work for a brokerage that takes a portion. Some brokerages take a 50/50 split, while others have different arrangements.

Here’s a possible real-world example:

- Seller pays 6% ($24,000) commission on a $400,000 home sale
- Listing agent's brokerage takes their share
- Buyer’s agent’s brokerage takes their share
- Each agent receives what’s left after the brokerage cut

That means individual agents might take home only 1.5% or less from the entire sale.

Are Real Estate Commissions Negotiable?

Yes! Real estate commissions aren’t set in stone. While 5-6% is standard, sellers can negotiate with their listing agent for a lower commission, especially in competitive markets.

A few factors that influence whether an agent will lower their commission include:

- Market Conditions – In a seller’s market (where homes are selling quickly), agents may be more willing to lower their commission since they won’t have to work as hard to sell the home.
- Home Value – If a high-priced home is involved, an agent might agree to a lower percentage because the final payout is still substantial.
- Multiple Transactions – If you’re buying and selling with the same agent, they may lower their commission as part of the deal.

If you're a seller and feel confident negotiating, it's worth talking to your agent about a reduced rate—just remember that lower commissions might mean less incentive for agents to prioritize your listing.

Do Agents Earn Salaries or Just Commissions?

For most real estate agents, commission is their only source of income. Unlike regular jobs, they don’t receive hourly wages, benefits, or a paycheck just for showing up.

This means agents take on significant financial risk because they:

- Cover their own marketing costs, including professional photography, ads, and signage.
- Spend time and money on open houses and client meetings without guaranteed pay.
- Often work for months before closing a deal and receiving payment.

Some brokerages offer small base salaries or stipends, but for the vast majority, no sale = no paycheck.

How Do Discount Brokerages Affect Real Estate Commissions?

In recent years, discount brokerages and flat-fee services have shaken up the traditional commission model. These companies offer homeowners a way to list their properties for a lower fee—sometimes as little as 1-2%.

While this sounds great for sellers looking to save money, there are trade-offs:

- Less hands-on service – Discount brokers may not provide the same level of marketing, staging, or negotiation support.
- Limited agent involvement – Some services operate more like DIY platforms rather than offering personalized assistance.
- Lower motivation – Buyer’s agents might be less eager to show properties that offer reduced commissions.

For some sellers, saving on commission is worth it, but for others, the full-service approach of a traditional agent is more beneficial.

Can Buyers Pay Their Agent Directly?

While sellers typically cover commissions, some buyers choose to pay their agents directly—especially in competitive markets.

This happens when:

1. A buyer-agent agreement outlines that the buyer will compensate their agent separately.
2. The seller offers no commission or a lower-than-standard rate.
3. The buyer wants a dedicated agent who isn’t influenced by seller-paid commissions.

However, this is still relatively uncommon, as most buyers prefer to have the seller cover the cost.

Is the Real Estate Commission Model Changing?

With the rise of technology and online platforms, the traditional commission model is evolving. Some industry trends include:

- Flat-fee brokerages offering set pricing instead of percentages.
- Hybrid models where sellers pay for individual services rather than a full-service package.
- Tech-driven discount firms reducing commission costs by streamlining the home-selling process.

Still, full-service agents remain in demand, as buying/selling a home is often a complex and emotional process that benefits from professional guidance.

Final Thoughts

The commission structure of real estate agents isn't as simple as it might seem at first glance. While the typical commission hovers around 5-6%, it gets divided among multiple parties—including brokers—before reaching the agents themselves.

For sellers, it’s possible to negotiate commissions, but it’s essential to weigh the potential trade-offs. And as the industry evolves, alternative commission models and discount brokerages are presenting new options for buyers and sellers alike.

While commissions may seem like a hefty price tag, remember that real estate agents invest significant time and resources into selling a home. At the end of the day, hiring the right agent can mean a smoother, more profitable transaction.