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How Do Realtors and Real Estate Agents Get Paid?

October 01, 2018
Living room in Cira Plan at The Landing by Brookfield Residential in Tustin, CA

Thinking about hiring a real estate agent? Wondering how Realtors get paid? In this post, we discuss real estate agent commissions and whether or not you have to pay a Realtor if you are buying a home. We also explore how much you need to pay an agent to sell your home and what services are included.

How do Realtors and real estate agents get paid?

Realtors and real estate agents are paid through commissions based on a percentage of the home’s price. Today, the average real estate commission Realtors make is between 5%-6% which is then split between the broker that listed the property and the agent representing the buyer.

How real estate commissions work

Now that you understand how real estate agents are paid, let’s go over how those commissions actually work. Generally, commission rates are decided when a seller and a real estate broker (a person or company that employs real estate agents) sign a listing agreement. A listing agreement is a contract that allows the broker to find a buyer for the home while specifying certain details about the sale, such as the specific percentage commission that the seller will pay.

However, the full commission is not usually paid entirely to the real estate broker. Usually, the commission is split between the real estate broker and listing agent as well as the buyer’s agent and the buyer’s broker.

Who pays the real estate commission? Buyer or seller?

Technically, the seller of a home is the one who agrees to a specific commission rate and pays that commission. However, the cost of the commission is usually baked into the listing price of the home which would mean that the buyer would be paying for at least part of the commission, just not outright.

Example of a real estate commission

Say a home is listed for $600,000 and sells for $625,000. Before the sale, the seller agreed to pay a 7% commission once the sale was completed. That means after the house sold, the seller is required to pay 7% of $625,000, or $43,750 to the agents who brokered the deal. Usually, it’s a 50-50 split between the seller agency and buyer agency meaning each party would share 3.5% of the commission, or $21,875.

What are the services included when hiring a Realtor to sell your home?

It depends on the real estate agent you use and how much you pay, frankly. Like most other things, the more money you spend, the more you will get and it’s no different with real estate agents. Things like professional photographs and digital marketing efforts can cost more, but they can also lead to more eyes on your listing.

Your turn

Now it’s your turn to take what you’ve learned and put it to use. Real estate commissions are not going anywhere, but it’s important to know what they are, how they work, and who pays them when you are buying or selling a home. To learn more, check out our posts on buying a home without a real estate agent and real estate terminology you need to know when buying a house. You should also feel free to contact us directly to speak with one of our homebuying experts.