Real estate agents get paid through a commission tied to a home sale, and that money only arrives if the deal actually closes. The fee is negotiated in writing before the agent goes to work, routed through a licensed brokerage at closing, and then split with the individual agent according to a separate in-house agreement. Since August 17, 2024, buyers and sellers negotiate their agents’ pay separately rather than the seller covering both sides by default.
What the Commission Looks Like
The standard setup is a percentage of the final sale price. Total commissions across both sides have historically run about 5% to 6%, though the number has been trending down. On a $400,000 home, a 5% total commission produces $20,000 in combined fees.
Percentages are not the only option. Discount brokerages and some independent agents charge a flat fee set upfront, and a few charge an hourly rate for limited services. Every structure is negotiable, and every written agreement has to state plainly that fees are not set by law.
Who Pays Which Agent
Before August 2024, a seller typically paid one commission that covered both the listing agent and the buyer’s agent, with the two brokerages splitting the total. A legal settlement involving the National Association of REALTORS® changed that.
Sellers are no longer automatically on the hook for the buyer’s agent. Buyer’s agent pay is now negotiated separately between the buyer and their own agent, in writing, before any home tours.1National Association of REALTORS®. What the NAR Settlement Means for Home Buyers and Sellers A seller can still offer to cover a buyer’s agent, but that offer cannot be advertised on a Multiple Listing Service.2National Association of REALTORS®. Summary of 2024 MLS Changes
In practice, many sellers still offer something to attract buyers, and buyers often ask the seller to cover the fee as part of the purchase negotiation. A seller can also give a closing-cost concession the buyer applies toward their agent.3National Association of REALTORS®. Consumer Guide: Seller Concessions One hard limit matters here: buyer’s agent commissions generally cannot be rolled into the mortgage. Fannie Mae, Freddie Mac, FHA, and VA loan programs do not allow it, so a buyer who ends up paying their own agent needs cash at closing or a negotiated seller contribution.
The Written Agreement That Locks the Pay In
As of August 17, 2024, any agent participating in an MLS must have a signed written agreement with a buyer before touring a home together.1National Association of REALTORS®. What the NAR Settlement Means for Home Buyers and Sellers The agreement has to include a specific compensation amount stated as a concrete figure, such as $0, a flat dollar amount, a percentage, or an hourly rate. A range or open-ended figure is not allowed. The agreement also has to cap what the agent can collect: no matter where the money comes from, the agent cannot receive more than the amount the buyer agreed to. And the document must conspicuously state that broker fees are fully negotiable and not set by law.
On the seller’s side, a listing agreement sets the commission rate or flat fee, the length of the relationship, and the services the agent will provide. These typically run three to six months.
Protection Periods
Most listing agreements include a protection period, sometimes called a tail clause, that extends past the contract’s end date. If a buyer who was introduced to the property during the listing period buys it after the agreement expires, the original listing agent may still be owed a commission. These periods typically run from 30 days to several months. Sellers should read this clause before signing, because it can trigger a commission even after they move to a different agent.
How the Money Moves at Closing
State licensing laws generally require commission to flow through a licensed brokerage rather than directly to an individual agent. The brokerage carries legal responsibility for the transaction and handles the money.
At closing, a neutral settlement agent or escrow officer manages the funds. Federal regulations require that real estate commissions be itemized on the closing disclosure, with the specific amount going to each brokerage.4eCFR. 12 CFR Part 1024 – Real Estate Settlement Procedures Act (Regulation X) The settlement agent checks that the figures match the signed agreements before releasing anything. Payments go to the participating brokerages, not to individual agents. Once the funds clear, the brokerage pays the agent after deductions, usually within one to three business days.
How Brokerages Split With Their Agents
When a seller does offer compensation that covers both sides, the brokerages first divide the total between themselves, often 50/50 but not always, depending on the listing agreement and any separate offer of compensation. Then each brokerage splits its share with the individual agent under a pre-existing in-house arrangement. Common patterns:
- Traditional splits of 50/50, 60/40, or 70/30, with the agent keeping the larger share. New agents often start at the lower end.
- High-producer splits as favorable as 80/20 or 90/10 for experienced agents with strong track records.
- 100% commission models, where the agent keeps the full commission and pays the brokerage a flat monthly desk fee instead.
Franchise brokerages may also deduct a royalty from the agent’s share, and some brokerages add flat administrative or technology fees per transaction. All of this comes out before the agent sees a dollar.
What the Agent Keeps After Taxes
The IRS classifies licensed real estate agents as statutory nonemployees, meaning they are treated as self-employed for federal tax purposes, as long as substantially all of their pay is tied to sales rather than hours worked and they have a written contract saying they will not be treated as employees.5Internal Revenue Service. Statutory Nonemployees Nearly every commission agent meets both tests.
Nothing is withheld from a commission check. The agent owes self-employment tax covering Social Security and Medicare, at a combined 15.3%: 12.4% for Social Security on income up to $184,500 in 2026, and 2.9% for Medicare on all earnings with no cap.6Social Security Administration. Contribution and Benefit Base Federal and state income taxes come on top, usually paid through quarterly estimates.
Brokerages report each agent’s annual commission income on Form 1099-NEC for any amount of $600 or more.7Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC Agents can offset taxable income by deducting ordinary business expenses: MLS dues, marketing, continuing education, licensing fees, transportation, and home office costs. Careful records through the year make a real difference at tax time, because commission income arrives gross and the tax bill lands all at once.