When you buy a house, your real estate agent gets paid at closing out of the funds moving through the transaction, at a rate you agreed to in writing before your agent showed you a single property. So how does a Realtor get paid when you buy a house in practice? A neutral settlement agent — an escrow officer, title company, or closing attorney — disburses the commission to the brokerages, which then pay the individual agents. Depending on your buyer agreement and your purchase offer, that money can come entirely from the seller’s proceeds, partly from you, or from a seller credit worked into the price.
The Written Agreement That Sets Your Agent’s Pay
Since August 2024, before your agent can take you to see any home, you have to sign a written buyer representation agreement. That contract has to state exactly what your agent will earn — a specific dollar amount, flat fee, percentage, or hourly rate. It cannot be open-ended or given as a range, and it must disclose in plain terms that broker fees are fully negotiable and not set by law.1National Association of REALTORS®. What the NAR Settlement Means for Home Buyers and Sellers
This is the document that controls how your agent gets paid. It came out of the 2024 National Association of Realtors settlement, which ended the old practice of advertising buyer-agent compensation offers on the Multiple Listing Service. Sellers can still offer to cover the buyer’s agent; they just can’t post that offer through the MLS anymore.2National Association of REALTORS®. Summary of 2024 MLS Changes
Before you sign, look for a clear end date so you aren’t tied to one agent indefinitely. Confirm whether the rate stated is the total your agent earns or only what you owe after any seller contribution. Ask what happens if the seller offers nothing toward the buyer’s side. And consider negotiating a termination clause that lets either party end the relationship with written notice.
How the Commission Amount Is Set
Real estate commissions are calculated as a percentage of the final sale price. Total commissions on a residential sale generally run between 5% and 6%, split between the listing brokerage and the buyer’s brokerage. On a $400,000 home at 6%, the two firms would share $24,000.
Your agent doesn’t keep their brokerage’s whole share. Every licensed agent works under a supervising broker, and the brokerage takes a cut for overhead before paying the agent under a private split. Those splits vary widely from firm to firm, ranging from an even 50/50 to as favorable as 95/5 for experienced agents. You may also see a brokerage administrative fee — sometimes called a transaction fee — of a few hundred dollars on top of the percentage. That fee is negotiable and should appear in your written agreement.
Where the Money Actually Comes From
Traditionally, the seller’s proceeds paid both sides of the commission. On a $500,000 sale at 6%, $30,000 came out of the seller’s equity at closing, and while the buyer technically financed it through the purchase price, the cash moved entirely from the seller’s side of the ledger. That arrangement is still common, but the post-settlement rules leave you with three practical structures:
- Seller pays both sides. The seller agrees, either in the listing terms or during offer negotiations, to cover the buyer’s agent fee. The commission comes out of the seller’s proceeds at closing.
- Buyer pays directly. If the seller won’t cover your agent, you bring the money to closing on top of your down payment and closing costs. This amount cannot be rolled into the mortgage loan.
- Seller concession. Your offer asks the seller to credit a portion of the sale proceeds toward your closing costs, including your agent’s fee. On a $350,000 offer with a $7,000 concession, the seller effectively pays for your representation out of the purchase price.
Concessions can help you preserve cash, but lenders limit how much a seller can contribute, and going over the limit can jam up your financing.
The Commission Gap
If your buyer agreement says your agent earns 2.5% and the seller only offers to cover 2%, you owe the 0.5% difference. The buyer agreement is a binding contract, and you’re responsible for whatever it specifies.3National Association of REALTORS®. Consumer Guide to Written Buyer Agreements You can ask the seller to cover the full amount in your offer, but the seller doesn’t have to say yes.
Lender Caps on Seller Concessions
If you’re financing, your lender limits how much the seller can contribute toward your costs, commission included. The cap depends on your loan type.
Conventional Loans
For Fannie Mae-backed conventional loans, the maximum interested-party contribution is tied to your loan-to-value ratio:4Fannie Mae. Interested Party Contributions (IPCs)
- Down payment under 10% (LTV above 90%): up to 3% of sale price or appraised value, whichever is lower.
- Down payment of 10% to 24.99% (LTV 75.01%–90%): up to 6%.
- Down payment of 25% or more (LTV 75% or below): up to 9%.
- Investment property: up to 2% regardless of down payment.
Anything above these limits is treated as a price reduction and cut from the home’s value for underwriting, which can affect approval.
FHA Loans
FHA-insured loans allow seller concessions up to 6% of the purchase price or appraised value, whichever is lower. If a seller pays the buyer’s agent commission as a matter of local custom and the amount is reasonable, FHA doesn’t count that payment against the 6% cap.
VA Loans
VA rules historically barred veterans from paying real estate brokerage fees at all. After the NAR settlement, the VA issued a temporary policy letting veterans pay reasonable buyer-broker charges as long as the fees aren’t financed into the loan and the veteran has the cash at closing.5Veterans Benefits Administration. Circular 26-24-14 Temporary Local Variance for Certain Buyer-Broker Charges As of early 2026 that remains a temporary measure. If you’re using a VA loan, check with your lender for current guidance.
How the Payment Moves at Closing
Commission money never passes directly between you and the agent. The settlement agent collects all the funds, checks that every obligation has been met, and only then releases payments. Commissions are itemized on page two of the Closing Disclosure, the five-page federal form that replaced the HUD-1 for most residential transactions in October 2015.6National Association of REALTORS®. TRID Closing Disclosures Summary You and the seller both review and sign this document before funds move.
Once everything is approved, the settlement agent wires funds or issues checks to the listing brokerage and the buyer’s brokerage. Each firm then pays its agent under their internal split. That paper trail also supports tax reporting and compliance on the back end.
If the Sale Falls Through
As a general rule, no commission is earned until the sale actually closes. Signing a purchase agreement alone doesn’t trigger payment.
On your side, if you signed a buyer representation agreement and then walk away without cause, your agent could in theory seek compensation under its terms. In practice, most buyer agents will release you rather than pursue a claim, but the contract governs, so read it before you sign. A termination clause spelled out in writing is the cleanest protection.
Tax Treatment
Real estate commissions aren’t deductible as a personal expense on your annual return. The tax effect shows up later. If you pay a commission directly at closing, that amount is added to your property’s cost basis, which reduces your taxable gain when you eventually sell.7Internal Revenue Service. Publication 551, Basis of Assets Commission payments qualify as settlement fees that can be included in basis, alongside items like recording fees and transfer taxes. When the seller pays, the commission reduces the seller’s amount realized rather than helping the buyer.8Internal Revenue Service. Publication 523, Selling Your Home