Most homesellers use the services of a real estate agent to find a buyer. Typically, this service will be paid for by a commission based on the selling price.
However, the exact amount a real estate agent makes from a sale depends on many factors. We will look at how much real estate agents make and how they are paid.
How do real estate agents get paid?
When a home is sold, a percentage of that price is paid to the real estate agents involved via their brokerage. Sometimes a flat-fee service is available instead, but this isn’t very common.
While you might only deal with a real estate agent, they do not work independently. Instead, a broker supervises agents to ensure they comply with real estate laws. Agents don’t work alone and cannot directly receive commissions when selling a home.
On the other hand, real estate brokers can work by themselves but often hire agents as employees.
Every real estate firm has to have a designated broker who is paid commissions and shares them with agents involved in the sale.
How do commissions work?
When you decide to sell your home, you will sign a listing agreement with a listing broker. This will state the commission and other terms of the contract.
5% or 6% commissions are typical in most areas of the country, though these are negotiable. All of this cost will fall on the seller in most circumstances.
However, since the buyer is paying money to the seller, the agent’s commission could be considered factored into the purchase price, pushing up the cost.
In turn, the real estate agent will agree with their broker on how the commission is split. This could mean a 50/50 split between agent and broker, but often the agent will get more than half.
If the agent is more experienced, they could get 60% or 70% of the commission received by their broker.
Typically, the commission will be divided among four people; the listing agent, the listing broker, the buyer’s agent, and the buyer’s agent’s broker.
Example commission schedule
Let’s look at an example of how the commission might be divided.
If a home is listed for $300,000 and a commission rate of 5% is agreed, the total commission paid by the seller will be $15,000.
If the home actually sells for that amount, it will be divided equally between the listing and the buyer’s agent’s brokers. The $7,500 will then be split with the agents involved in the transaction.
Let’s say the listing agent has a 70/30 split with their broker, and the buyer’s agent has a 60/40 split. This is how the commission would be divided:
- The listing agent gets $5,250
- The listing broker keeps $2,250
- The buyer’s agent gets $4,500
- The buyer’s agent’s broker keeps $3,000
In some situations, fewer people will be involved in the sale and keep more of the commission. If a broker lists the home and finds a buyer, they could get to keep all of the commission.
However, with the ever-present taxes due, it isn’t all profit for agents. Other costs to operating their business include insurance, advertising, multiple listing service fees, and more, which reduce their earnings.
How much does a real estate agent make?
While you might imagine that real estate agents earn huge sums, since their fees are split, it might not be as much as you think. In 2021, details from the U.S. Bureau of Labor Statistics show the median salary was $48,770 annually for agents, and for brokers, it was $86,490.
The top earners in the profession have the potential to earn a lot more, however. The top 10% of agents earned over $100,000 in 2021, with top brokers making more than $176,000.
Real Estate market conditions can also have a significant impact on an agent’s earnings.
Commission can still be due when the home doesn’t sell
In rare situations, the seller might still be required to pay the commission if the home doesn’t sell. There will be terms in the listing agreement that cover these situations, but they could include:
- An owner refusing to sell when they have an offer
- Defects found in a title search on the title that aren’t fixed
- A case of fraud
- Demanding terms, not in the agreement
- Unable to transfer the home to the buyer in a reasonable time frame
Final thoughts
The majority of real estate agents are paid through a commission split with their broker and other people involved in the transaction. The exact amount they receive could vary significantly between different agents.
Lots of folks think all real estate agents make significant amounts of money. It’s a fallacy. Only the upper echelon agents have a substantial income.
Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell MetroWest Massachusetts real estate for the past 35 years. Bill is the owner and founder of Maximum Real Estate Exposure. For the past decade, he has been one of the top RE/MAX REALTORS® in New England.
