Learn how much commission agents typically make, what that looks like in action, who pays the commission, and how buying a house versus a commercial property may be different.
How Much Commission Do Real Estate Agents Make?
Most real estate agents are paid by receiving a percentage commission on the sales price or rent of each property that they help a client sell, buy, or lease (rather than a flat fee for a transaction, for example). While there is no official commission rate, in practice, individual local markets tend to have their own standard rate, which has tended to be anywhere from 5% to 6% of a residential property’s purchase price. For decades, though, percentage commission rates have been on the decline. In a February 2022 report, Redfin reported that the average “buy-side” commission rate was 2.63% of the sale price, down from 2.69% in 2020 and 2.75% in 2017. And data analysis from RealTrends says that the total commission (buying and selling sides) is about 4.94%, which is down from 5.4% in 2012. These numbers don’t reflect commission splits between agents and their brokerages, however.
How Much Does an Agent Really Make on a Transaction?
If you’ve sold a property with a listing agent and gone through escrow before, you may remember giving up about 5% to 6% of your profits in commission. What you may not have realized is that the agents involved in the transaction didn’t each walk away with exactly half of that money. Instead, every real estate agent must operate under the umbrella of a real estate brokerage as an independent contractor (or be licensed as a real estate broker themselves). With the successful close of a deal, then, the seller or landlord typically pays an agreed-upon commission to the listing brokerage, which then splits that commission with the buyer or tenant’s brokerage (unless the tenant is paying their own brokerage, which does occur in some markets). Next, each brokerage splits its commission further when it pays its own agent.
Commission Splits in Action
To make this clearer, let’s see an example:
A property sells for $300,000 with a 5% commission in place, as agreed between the seller and listing broker.$300,000 with a 5% commission equals $15,000 in total commission.Assuming a 50% split between the listing and buyer’s brokerages—common when both operate in the same region—the listing broker pays $7,500 of the commission to the other broker and keeps $7,500.Each $7,500 is then split between the broker and the agent. Assuming a commonly used 50% split for this example, each agent ultimately gets half the commission, or $3,750 each.
Alternate Compensation Structures
There are various ways that percentage commission may be split between the agents and their brokers. The National Association of Realtors (NAR) reports that in 2021, 36% of real estate agents had a fixed split with their broker, while 20% worked on a “graduated commission split”—meaning they made a higher percentage the more transactions they closed. And 18% worked with a “capped commission split,” which means that after meeting a certain quota, they kept the full commission for their side of the transaction. Less common compensation structures for agents also include earning salary rather than commission and a rare 100% commission model—where the agent doesn’t split any of the commission with the broker but instead pays them fixed fees for services provided, such as marketing, lead generation, and use of office space.
What Is the Average Commission for a Real Estate Agent?
Commission rates vary by region and splits between agents and their brokerages vary based on their contracts, level of experience, and performance history. The average commission paid to a buyer’s brokerage during the three months ending November 30, 2021, was 2.63%. In 2019, New York and Massachusetts had some of the lowest buy-side commission rates (dipping to 1.98% in Nassau County, New York, for example), while Kansas City, Missouri, and Columbus, Ohio, with a 2.94% buy-side commission, were two of the highest-paying metro areas. In dollar amounts, the highest average buy-side commissions were in Los Angeles, California ($27,444); Oakland, California ($28,026); and St. Louis, Missouri ($41,505). Remember, these averages reflect commissions on the buying and listing sides before any broker-agent splits.
Do You Have To Pay the Real Estate Agent Commission When Buying Property?
If you’re looking to purchase or rent a property—whether a home to live in, a place to do business, or an investment property to lease to someone else—the good news is that as the buyer or tenant, you typically aren’t responsible for paying commission when the deal closes. Instead, the commission comes off the total sales price of a property at closing. Essentially, this means that the seller, not the buyer, is paying the agent’s commission. And in general, it is the listing broker who then pays the buyer’s broker from their commission on the sale of a property, as shown in the example above. If the property you’re purchasing is being sold by the owner rather than through a real estate professional, and the owner specifies that they will not pay the buyer’s agent commission, you may be responsible for that cost.
Real Estate Agent Commission: Buying a House vs. Commercial Property
As with residential transactions, the seller or landlord of a commercial property typically will be the one to pay the commission at closing. So if you’re buying or renting a storefront for your small business, you typically would not be responsible for paying the listing or buyer’s agents commissions. However, if you’re a real estate investor planning to buy a house and rent it out with the help of an agent, you’ll need to be ready to pay commission once you find a tenant. In commercial transactions, the total percentage commission rate often varies relative to the price of the property. According to Hartman Income REIT Management, a Texas-based corporate broker, for example, “a typical commercial real estate commission can vary from 4%-8% in deals under $1 million. Once you go above $1 million in property value, the commercial real estate commission will begin to decrease.” If you’re considering becoming a landlord, the listing brokerage may ask you to agree to a percentage commission based on how much rent you would collect over the life of the lease. Here’s one example:
You plan to lease out an investment house for $1,200 a month with a two-year lease.You sign a listing agreement with a brokerage that says you will pay a total of 4% commission on a total of $28,800 ($1,200/month over 24 months), which would equal $1,152.Per the details of your agreement, you pay half ($576) at the signing of the lease and then pay the remainder upon occupancy.Now the listing brokerage is responsible for paying out commission to the listing agent and the tenant’s brokerage (if applicable), who would then pay their agent.
