A real estate agent gets paid a commission — a negotiated percentage of the home’s final sale price — that comes out of the sale proceeds at closing. The money does not go straight to the agent. It flows through the agent’s supervising broker, gets split between the brokerages and then between the broker and the agent, and only then lands in the agent’s account. Total commissions have historically run between 5% and 6% of the sale price, though a 2024 national settlement has changed how buyer-side pay is negotiated and quoted.
Where the Money Comes From
Commission is written into a contract between the seller and the listing brokerage as a percentage of whatever the home eventually sells for. On a $400,000 sale with an agreed rate of 5.5%, the total commission is $22,000. Sell for more, the check grows; sell for less, it shrinks. The agent’s pay rises and falls with the deal.
No federal law sets the rate. Research from the Federal Reserve indicates rates have started shifting since the 2024 National Association of Realtors settlement.1Board of Governors of the Federal Reserve System. Commissions and Omissions: Trends in Real Estate Broker Compensation Any quoted percentage is a starting point for negotiation, not a fixed cost.
Who Actually Pays the Agent
The seller signs a listing agreement when the home goes on the market, and that contract obligates the seller to pay the listing agent’s commission. The amount is deducted from the seller’s proceeds at closing rather than paid out of pocket on top.
Under the traditional model, the seller also funded the buyer’s agent through a cooperative split with the listing brokerage. That changed on August 17, 2024, when new rules from the NAR settlement took effect.2NAR.Realtor. NAR Practice Changes to Take Effect Aug. 17 Two things shifted:
- Listing brokers can no longer advertise offers of compensation to buyer agents on a Realtor-affiliated Multiple Listing Service. Sellers can still offer to cover the buyer’s agent, but through flyers, brokerage websites, or direct communication rather than the MLS field.
- Any agent working with a buyer must sign a written buyer representation agreement before touring a home together, in person or virtually. The agreement spells out what the buyer’s agent will be paid and who will pay it. Open houses visited on your own and general questions to an agent do not trigger the requirement.3NAR.Realtor. Consumer Guide to Written Buyer Agreements
So who pays the buyer’s agent now depends on what the parties negotiate. The seller may still agree to cover it, either as a direct commission offer or as a concession written into the purchase agreement. Or the buyer pays the agent directly under the terms of their representation agreement.4NAR.Realtor. Compensation, Commission and Concessions In many deals, the buyer negotiates a credit from the seller to cover the fee.
How the Commission Gets Divided
The total commission at closing is not what the agent takes home. It passes through several splits.
Brokerage to Brokerage
If a seller agrees to compensate the buyer’s agent, the total is divided between the listing brokerage and the buyer’s brokerage, historically on something close to a 50/50 basis. A 6% commission on a $400,000 home produces $24,000, split as $12,000 to each firm.
Brokerage to Agent
Each brokerage then splits its share with the individual agent who did the work. Common arrangements are 50/50, 60/40, and 70/30, with the agent typically keeping the larger slice on the latter two. Under a 70/30 split on a $12,000 brokerage share, the agent receives $8,400 and the firm keeps $3,600. New agents often start with smaller shares and earn better splits as they close more deals.
Costs come off the top of the agent’s share too. Many brokerages charge monthly technology or desk fees, often $50 to $150 or more, for office space, software, and client management tools. Agents also pay annually for license renewal, MLS access, association dues, and errors-and-omissions insurance.
Referral Fees
If another agent, a referral network, or a relocation company sent the client, a referral fee is taken from the agent’s share before they receive it. These usually run around 25% of the receiving agent’s commission, with a range of roughly 10% to 50%. Referral networks and relocation companies tend to charge at the higher end. Federal law allows cooperative brokerage and referral arrangements, carving them out of the general prohibition on kickbacks in real estate transactions.5Office of the Law Revision Counsel. 12 USC 2607 – Prohibition Against Kickbacks and Unearned Fees
When the Agent Gets the Check
Agents are paid at closing and not before. An escrow officer or title company representative handles the money at the closing table, and the Closing Disclosure itemizes every payment, including the exact commission amounts going to each brokerage.6Consumer Financial Protection Bureau. Closing Disclosure Funds release after the buyer’s mortgage is funded and the deed is recorded with the county.
If the deal falls apart first — a failed inspection, financing that collapses, a buyer who walks away — the agents involved usually receive nothing for the weeks or months of work. That all-or-nothing structure is one of the financial risks agents accept as independent contractors.
Agents who need cash sooner sometimes use commission advance companies, which buy a portion of the expected commission upfront for a fee. Fees generally run from about 5% of the advance for deals closing within 30 days to 16% or more for deals further out, with repayment coming from the commission at closing.
Alternatives to the Percentage Commission
Not every agent charges a percentage. Several other structures exist, especially for sellers willing to handle parts of the transaction themselves.
- Flat-fee listings charge a set dollar amount regardless of the sale price. Basic MLS-only listing packages can cost a few hundred dollars; full-service flat-fee brokerages charge more.
- Hourly consulting lets an agent review contracts, advise on pricing, or guide negotiations for a defined fee, without taking on full representation.
- Hybrid models combine a reduced percentage with a flat fee for a defined scope of service, with the client taking on tasks like photography or showings.
Each of these still requires a written agreement with the brokerage. And on the buyer side, the written representation requirement applies regardless of how the agent is compensated.
What the Agent Keeps After Taxes
Real estate agents are classified as statutory nonemployees under 26 U.S.C. § 3508, which means the IRS treats them as self-employed for federal tax purposes.7Office of the Law Revision Counsel. 26 USC 3508 – Treatment of Real Estate Agents and Direct Sellers That classification applies when substantially all the agent’s pay is tied to sales rather than hours worked and a written contract states the agent will not be treated as an employee.8Internal Revenue Service. Statutory Nonemployees State law also requires an active license and a supervising broker, and all commission payments must flow through the broker’s business account rather than directly from client to agent.
Because the IRS treats them as self-employed, agents owe self-employment tax on commission income on top of regular income tax. The self-employment tax rate is 15.3%, made up of 12.4% for Social Security and 2.9% for Medicare.9Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes) Nothing is withheld from the closing check, so agents make quarterly estimated payments to the IRS to avoid underpayment penalties. Business expenses — mileage, marketing, licensing, home office, software, client gifts up to $25 per recipient per year — are deductible on Schedule C and reduce the taxable share of what the agent takes home.