Real estate commission is the fee a seller agrees to pay their broker for selling a home, calculated as a percentage of the final sale price and paid out of the proceeds at closing. Understanding how real estate commission works comes down to three questions: how much it is, who pays it, and how that money gets divided among the brokerages and agents who worked on the deal. Total commissions usually land somewhere between 5% and 6% of the sale price, but every number is negotiable, and rule changes that took effect in August 2024 have reshaped how buyers and sellers handle the buyer-agent side of the fee.
How Much Commission Costs
Commission is a percentage of the final gross sale price. On a $400,000 home with a 5.5% total commission, the fee is $22,000, deducted from what the seller walks away with. No law sets the rate. The Sherman Antitrust Act makes industry-wide price-fixing a federal crime, so no trade group or agency can publish a “standard” percentage.1Federal Trade Commission. Guide to Antitrust Laws Whatever rate appears in your listing agreement is the product of a conversation between you and your broker.
Not every brokerage charges a percentage. Flat-fee arrangements run from a few hundred dollars for basic MLS access up to several thousand dollars for a fuller service package. Either structure is legal as long as the terms are written down before the property goes on the market. One rule holds in both models: commission is earned only when the sale closes. If the deal falls through, no fee is owed.
Who Pays Real Estate Commission
Traditionally, the seller pays the whole commission out of the sale proceeds, covering both the listing agent’s side and the buyer’s agent’s side. That remains common, but no federal or state law requires it. Commission responsibility is a negotiable term, and the purchase contract can allocate it however the parties agree.
What Changed With the NAR Settlement
A National Association of Realtors settlement took effect on August 17, 2024, and brought two practice changes that affect every buyer and seller.2National Association of Realtors. National Association of Realtors Provides Final Reminder of NAR Practice Change Implementation on August 17, 2024 First, listing brokers can no longer advertise offers of compensation to buyer’s agents on the MLS. Second, before a buyer’s agent can tour a home with a client, the two must sign a written agreement spelling out exactly what the agent will be paid.3National Association of REALTORS®. NAR Settlement FAQs
Compensation offers themselves are not gone. A seller can still choose to pay the buyer’s agent through the listing broker or as a seller concession written into the contract. What changed is where that offer lives. It is no longer posted in the MLS, so buyers now talk directly with their agents about fees, and sellers have more say over whether and how much to contribute to the buyer’s side.
Loan Program Caps on Seller Concessions
When a seller agrees to cover the buyer’s agent fee or other buyer closing costs, the payment is structured as a seller concession. Some government-backed loans limit how much a seller can contribute. VA-backed loans cap seller concessions at 4% of the home’s reasonable value.4U.S. Department of Veterans Affairs. VA Funding Fee And Loan Closing Costs FHA and conventional loans have their own limits, which vary with the buyer’s down payment. If a government-backed mortgage is in the picture, check with the lender before signing a contract that promises a large concession.
How the Commission Gets Split
The total commission almost never ends up in one person’s pocket. It moves through two layers of splits before anyone takes it home.
Between the Two Brokerages
When a listing broker and a buyer’s broker cooperate on a sale, they divide the total commission between their firms. An even split is common, but any ratio the parties agree to is permissible. The share for the buyer’s side is set by whatever the listing broker offered or by what was negotiated during the transaction.
Between the Agent and Their Broker
State licensing laws prohibit a real estate salesperson from receiving commission directly from a consumer. The payment goes to the agent’s supervising broker, who then passes along the agent’s share. The broker holds the primary license and the legal liability, which is why the money has to flow through the brokerage.
The internal split between agent and brokerage is set in an independent contractor agreement. Common arrangements include:
- A 50/50 split, typical for newer agents or those who rely on brokerage-provided leads.
- A 70/30 or 80/20 split, more common for agents who bring their own clients or produce higher volume.
- A graduated split that starts at one ratio and improves after the agent closes a set number of transactions.
The brokerage’s share covers overhead, insurance, and support services. Agents working on a team face another layer. A team leader who provides leads and mentorship takes a cut of the agent’s portion first. For team-generated leads, a 50/50 split between leader and member is standard; when the agent brings in the lead, the agent typically keeps 70% to 80%.
What the Listing Agreement Locks In
Before the property hits the market, the seller signs a listing agreement with the broker. This contract sets the commission rate or flat fee, any amount the listing broker plans to offer the buyer’s broker, the agreement’s expiration date, and any administrative fees. At closing, the settlement agent uses this document to calculate who is owed what.
The Protection Period
Most listing agreements include a protection period, sometimes called a safety or tail clause. If the agreement expires and the home later sells to a buyer the listing broker introduced during the contract term, the broker can still collect commission. Protection periods commonly run 30 to 90 days. If you switch brokers after a listing expires, check that the old protection period does not overlap with the new agreement. Otherwise, you could end up owing commission to both firms on the same sale.
Watch for Net Listings
In a net listing, the seller names a minimum price and the broker keeps everything above it. The structure creates a direct conflict of interest, because the broker profits by pushing the seller to accept less. NAR considers net listings unethical and most states ban them outright. A broker who proposes one is a red flag.
Administrative Fees
Many brokerages add a flat administrative fee on top of the commission, sometimes called a transaction fee, broker service fee, or compliance fee. These charges range from a couple hundred dollars to nearly $2,000. They are not required by law and they are negotiable, but they sometimes surface late in the process when changing agents feels impractical. Ask about every fee before you sign anything.
When the Money Actually Changes Hands
Commission is paid at closing, not before. A neutral third party, either an escrow company or a closing attorney depending on the state, handles the funds. The settlement agent works from the Closing Disclosure, which itemizes every cost in the deal, including commission. The Closing Disclosure replaced the older HUD-1 settlement statement for most residential sales in 2015, though HUD-1 forms are still used for some transactions like reverse mortgages.
The settlement agent takes the commission straight out of the seller’s proceeds and sends separate payments to the listing brokerage and the buyer’s brokerage. Individual agents never receive funds at the closing table. Each brokerage deposits its share, then runs the internal split through its own accounting system so the agent’s income is properly reported.
Dual Agency and Commission
Dual agency is when one agent represents both the buyer and the seller in the same transaction. Because the agent handles both sides, they can collect the full commission rather than splitting it with a cooperating broker. That opens a window for the seller to negotiate the total rate down. Asking for a reduction of a percentage point or more is reasonable when one agent is doing both jobs. Dual agency is legal in many states and prohibited in others. Ask your agent to explain the arrangement, and the disclosures your state requires, in writing before you agree to it.
When Two Brokers Claim the Same Commission
Disputes over who earned a commission usually turn on “procuring cause,” meaning which broker set in motion the chain of events that led to the sale. When two brokers both claim credit for a buyer, and both are NAR members, the dispute typically goes to mandatory arbitration rather than court.
NAR’s arbitration guidelines list factors the hearing panel weighs: who first introduced the buyer to the property and whether that introduction sparked real interest; whether the first broker stayed in contact or let the relationship lapse; whether the buyer walked away on their own or was pushed away by the broker’s conduct; whether the sequence from first showing to closed sale was continuous or broken; and whether anyone acted in bad faith to cut a broker out of the deal. No single factor decides the outcome, and prior decisions in other disputes carry no precedential weight.5NAR.realtor. Appendix II to Part Ten – Arbitration Guidelines
For most sellers and buyers, the practical takeaway is simpler: pick one agent, be clear about the relationship, and keep the paper trail clean. That alone avoids most procuring-cause fights before they start.