Realtors are paid by commission, almost always as a percentage of the home’s sale price, and only when the deal closes. The total fee generally runs 5% to 6% of the purchase price, split between the listing side and the buyer’s side, and it comes out of the seller’s proceeds at closing. Since a 2024 settlement involving the National Association of Realtors, buyers now sign a written agreement with their own agent that spells out that agent’s fee, and the buyer may owe it directly if the seller declines to cover it.
Where the Money Comes From at Closing
In a standard home sale, the commission is subtracted from the seller’s gross proceeds before the seller receives their net check. On a $400,000 sale with a 5.5% total commission, $22,000 comes off the top and is distributed to the brokerages involved. The seller technically writes the check, but the buyer funds it through the purchase price.
The actual mechanics run through a neutral third party. An escrow officer or title company collects the buyer’s funds and the loan proceeds, pays off the seller’s existing mortgage, and distributes what’s left according to the settlement instructions. Commissions appear as line items on the Closing Disclosure, the five-page federal form that itemizes every cost in the transaction.1Consumer Financial Protection Bureau. Closing Disclosure Sample Form The exact dollar amount going to each brokerage sits on page two under “Other” costs. Once the deed is recorded, the title company wires funds to each brokerage, and the individual agents are paid from there, usually within a few business days.
What the NAR Settlement Changed
Before August 2024, a listing agent could post a commission offer to buyer’s agents directly on the Multiple Listing Service. That created a default arrangement where the seller effectively paid both sides, and most buyers never thought about what their own agent cost. The settlement eliminated those MLS-based commission offers.2National Association of REALTORS®. What the NAR Settlement Means for Home Buyers and Sellers Sellers can still offer buyer concessions on the MLS, and they can still agree to pay a buyer’s agent through negotiation, but the automatic mechanism is gone.
The second change matters even more for buyers: you must sign a written agreement with your agent before touring homes listed on an MLS. That agreement has to state the compensation the agent will receive and cannot be open-ended. Casual conversation at an open house doesn’t trigger the requirement, but the moment you tour properties together, the contract needs to be in place.
The practical result is that buyer-agent compensation is now negotiated in every transaction. A buyer can ask the seller to credit money toward their agent’s fee as part of the purchase offer, but the seller isn’t required to agree. If the seller refuses, the buyer owes their agent under the terms of the agreement they signed.
Typical Commission Rates
Total commissions have historically fallen in the 5% to 6% range, split between the listing side and the buyer’s side. Since the settlement, averages have drifted a bit lower in many markets, closer to 5% to 5.5%, and the listing share and buyer’s share are each negotiated separately rather than bundled.
No law, regulation, or trade group sets these rates. They are entirely negotiable. The Department of Justice has treated coordinated pricing among brokerages as horizontal price-fixing under federal antitrust law.3U.S. Department of Justice. Department of Justice Files Statement of Interest Supporting Competition Among Real Estate If an agent tells you the rate is “standard” or “industry-set,” treat that as a negotiation posture rather than a legal fact.
Several things affect what rate you can actually negotiate. Higher-priced properties tend to command lower percentages because the dollar figures remain substantial. Hot seller’s markets create room to negotiate because homes move faster with less marketing effort. Repeat clients, investors buying multiple properties, and clients using the same agent to both sell and buy all have leverage.
Percentage-based commissions aren’t the only option. Flat-fee MLS services will place a listing for a few hundred to about a thousand dollars, leaving the seller to handle showings, negotiations, and paperwork alone. Some hybrid brokerages offer a middle path with a flat listing fee around 1% to 2% at closing in exchange for more limited service. You save real money but take on more work and more risk around pricing, contract terms, and disclosure compliance.
The Two Contracts That Govern How Your Agent Gets Paid
Listing Agreements
Before a home hits the market, the seller signs a listing agreement with a brokerage. This contract sets the listing price, establishes the agency relationship, and specifies compensation, whether that’s a percentage, a flat fee, or another structure.4National Association of REALTORS®. Consumer Guide: Listing Agreements It also spells out marketing activities such as MLS placement, photography, and open houses, and whether the seller is willing to offer a concession to the buyer’s agent.
Two clauses deserve close reading. The listing duration typically runs six months to a year; if the home doesn’t sell, the agreement expires and you can move on. Many agreements also include a protection period entitling the agent to a commission if a buyer they introduced during the listing later purchases the home shortly after the agreement ends. Thirty to ninety days is a common and reasonable window; longer than that is worth pushing back on.
Buyer Agency Agreements
Under the post-settlement rules, a buyer signs this agreement before their agent can show them any MLS-listed home.2National Association of REALTORS®. What the NAR Settlement Means for Home Buyers and Sellers It specifies the compensation your agent will earn (a percentage, flat fee, or hourly rate) and how it gets paid. It also covers scope of representation, fair housing disclosures, and dispute resolution.
The compensation figure is the line to focus on. If you agree to 2.5% and the seller offers a 2.5% concession, the concession satisfies your obligation. If the seller offers nothing, you owe the full amount out of pocket, or rolled into financing if your lender permits. Before signing, work through the worst case: can you actually pay your agent directly if the seller refuses to contribute? If not, negotiate a lower rate or a cap on your personal exposure before you start touring.
How a Commission Splits Between the Brokerage and the Agent
The commission check never goes directly to the individual agent. Every state requires agents to work under a licensed broker, who carries legal responsibility for the transaction. At closing, the funds go to the listing brokerage and the buyer’s brokerage, and each brokerage then splits its share with the agent who did the work.
That split is set by an independent contractor agreement the agent signs when joining the firm. New agents often start at 50/50 or 60/40 in the agent’s favor. More experienced producers negotiate 70/30 or 80/20. High-volume agents sometimes pay a flat monthly desk fee, ranging from several hundred to a few thousand dollars, and keep 100% of their commissions; that arrangement rewards volume but stings during slow stretches.
If the brokerage operates under a national franchise, the franchise usually takes a royalty off the top of each commission before the split is calculated, commonly 3% to 8% of gross commission. On a $10,000 commission with a 6% franchise fee, $600 leaves before the remaining $9,400 is split.
Referral fees are a separate layer. An agent who refers a client to an agent in another market typically receives around 25% of the receiving agent’s commission, with ranges of 15% up to 50% for corporate relocation firms. These referrals between licensed real estate professionals are specifically permitted under federal law even though RESPA generally bars referral fees in real estate settlement services.5Consumer Financial Protection Bureau. Regulation X – 1024.14 Prohibition Against Kickbacks and Unearned Fees The exception applies only when both parties are acting in a brokerage capacity.
Many brokerages also charge a flat administrative or transaction fee covering compliance, file management, and technology costs, typically $295 to $625 per transaction. Some pass this to the agent; others itemize it at closing to the buyer or seller. Ask before signing so it isn’t a surprise on the settlement statement.
Lender Caps If the Seller Is Covering the Buyer’s Agent
If you’re a buyer hoping the seller will cover your agent’s fee through a concession, your loan type may limit how much the seller can contribute. These caps exist to prevent inflated sale prices that disguise a financing subsidy.
Under Fannie Mae’s guidelines, seller-paid buyer agent commissions that follow local common and customary practices are not counted toward the interested party contribution limits at all.6Fannie Mae. Selling Notice – Interested Party Contributions Other seller-paid financing concessions, like credits toward closing costs, are capped based on your down payment:
- Down payment under 10% (LTV above 90%): capped at 3% of the sale price
- Down payment of 10% to 25% (LTV 75.01%–90%): capped at 6%
- Down payment above 25% (LTV 75% or less): capped at 9%
- Investment properties: capped at 2% regardless of down payment
FHA loans allow seller concessions up to 6% of the sale price. VA loans cap concessions at 4%, though standard closing costs like title and escrow don’t count against that limit. If you’re relying on a seller concession to pay your agent, confirm with your lender early that the numbers fit within your loan’s rules.7Fannie Mae. Interested Party Contributions (IPCs)
How the Commission Affects Your Taxes
For a seller, the commission is a selling expense that reduces taxable gain. The IRS calculates gain by subtracting adjusted basis and selling expenses from the sale price, so the commission directly lowers the profit exposed to capital gains tax.8Internal Revenue Service. Publication 523, Selling Your Home On a $500,000 sale with a $27,500 commission, the amount realized falls to $472,500 before other adjustments. For most homeowners who qualify for the capital gains exclusion ($250,000 single, $500,000 married filing jointly), this may not change what you owe because the gain is already excluded. On higher-value homes or investment sales, the deduction matters.
For a buyer, if you pay your own agent’s fee, that amount may be added to your home’s tax basis. A higher basis means a smaller taxable gain when you eventually sell. It doesn’t help today, but it can save real money years down the line.