Real estate agent commissions are paid at the closing table and listed on your closing paperwork, but they sit in their own category rather than inside the bucket most people mean when they say “closing costs.” So the honest answer to whether real estate agent commission is included in closing costs is: yes on the settlement statement, no in the way the term is normally used. Commissions are the largest line item in most home sales, and since August 2024 the rules about who owes them have changed.
Why Commissions Sit in Their Own Category
“Closing costs” is a catch-all for the expenses that get settled when ownership of a property changes hands. Most of them fall into two buckets. Loan-related costs include the lender’s origination fee, the appraisal, and credit report charges. Administrative costs cover title searches, recording fees, and transfer taxes. Both exist because the mortgage or the legal transfer of the deed requires them, and both are shaped by federal rules.
Agent commissions don’t fit either bucket. They’re service-based fees paid to the brokerages that marketed the property and found a buyer, governed by a private contract between the seller and the listing brokerage. The money moves through the same closing, but the amount is set entirely by negotiation. That is why many lenders, settlement agents, and buyer guides discuss commissions separately from the closing-cost estimate you see on a Loan Estimate.
Who Actually Pays the Commission
Traditionally, the seller pays the full commission. The listing agreement sets a percentage, and at closing the title or escrow company deducts that amount from the gross sale price along with the mortgage payoff and taxes. The seller receives what’s left. The seller never writes a separate check, and for decades the fee was effectively invisible to buyers, who only had to bring cash for their down payment and loan-related costs.
That remains the common pattern. A recent industry survey found roughly 92% of sellers still cover the buyer’s agent commission in practice. What changed is the assumption. Buyers can no longer count on it being baked in, and need to plan for the possibility of paying their own agent directly.
What Changed in August 2024
The National Association of Realtors agreed to a legal settlement that overhauled agent compensation. Two changes took effect on August 17, 2024.
Listing brokers can no longer advertise offers of buyer-agent compensation on Realtor-affiliated Multiple Listing Services. Sellers can still agree to pay the buyer’s side, and agents can communicate that off the MLS, but the old MLS field broadcasting a buyer-agent percentage is gone.
Any agent working with a buyer must now have a signed written agreement in place before touring a home, including live virtual tours. That agreement has to spell out exactly how the buyer’s agent will be paid: a flat dollar amount, a percentage of the purchase price, or a per-service fee. The figure cannot be open-ended, and the agreement must state that broker commissions are not set by law and are fully negotiable. A buyer’s agent also cannot collect more than what the written agreement specifies, no matter what the seller offers.
The practical effect is that buyers negotiate their agent’s pay up front, before touring, rather than inheriting whatever a listing broker had posted.
How Much the Commission Runs
Commission is calculated as a percentage of the final sale price. Total rates have historically clustered between 5% and 6%, though they vary by market and are always negotiable. On a $400,000 home at a 5.5% total rate, the commission would be $22,000. Post-settlement data suggests buyer-agent commissions have held roughly steady around 2.4% on average, with the listing side varying by agreement. The dollar amount isn’t locked in until the sales contract is signed, since it tracks the final price.
Seller Concessions and Loan Program Caps
A buyer who owes their own agent can ask the seller to cover that fee through a seller concession, where the seller credits a portion of the sale price toward the buyer’s costs. Concessions cannot be specifically conditioned on the buyer paying their agent a certain amount, but they can offset the expense.
Every major loan program caps how much a seller can contribute, and exceeding the cap can jeopardize loan approval:
- Conventional loans: the cap depends on the buyer’s down payment. Under 10% down, up to 3% of the sale price. Between 10% and 25% down, up to 6%. Above 25% down, up to 9%.
- FHA loans: sellers can contribute up to 6% of the sale price toward closing costs, prepaid expenses, and other financing concessions. FHA guidance confirms that seller-paid buyer-agent commissions are not treated as interested party contributions if they reflect reasonable local custom.1U.S. Department of Housing and Urban Development. FHA INFO 2024-12
- VA loans: the seller may contribute up to 4% of the sale price, plus reasonable and customary loan costs. A 2024 VA circular created a temporary variance allowing veterans to pay buyer-broker fees directly, though those fees cannot be rolled into the loan amount and must be paid from the veteran’s liquid assets.2Veterans Benefits Administration. Circular 26-24-14 Temporary Local Variance for Certain Buyer-Broker Charges
These limits apply to total concessions, not just agent fees. A seller who agrees to cover the buyer’s agent and also credits $5,000 in repairs needs the combined amount to stay within the cap.
Where Commissions Appear on Closing Paperwork
Federal law requires that every fee in a home purchase be itemized. The primary document is the Closing Disclosure, a five-page standardized form required under the Truth in Lending Act and the Real Estate Settlement Procedures Act, implemented through the TILA-RESPA integrated disclosure rule.3eCFR. 12 CFR 1026.38 – Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure) Borrowers receive this form at least three business days before closing.
Agent commissions appear in the “Other Costs” section of the Closing Disclosure, with each brokerage’s payment listed separately alongside the name of the firm receiving the funds.3eCFR. 12 CFR 1026.38 – Content of Disclosures for Certain Mortgage Transactions (Closing Disclosure) A VA borrower paying buyer-broker fees directly will see those charges on lines 1 through 3 of Section H (“Other”).2Veterans Benefits Administration. Circular 26-24-14 Temporary Local Variance for Certain Buyer-Broker Charges
Many transactions also use an ALTA Settlement Statement, a standardized form developed by the American Land Title Association that itemizes debits and credits for both buyer and seller.4American Land Title Association. ALTA Settlement Statements It shows how every dollar flows, including commission payments to each brokerage. Once documents are signed and the loan is funded, the title or escrow company disburses commission checks directly to the brokerages from the sale proceeds.
Tax Treatment for Sellers
Commissions reduce your taxable gain on the sale. The IRS treats agent commissions as a selling expense, which gets subtracted from the sale price to calculate your “amount realized.” A home sold for $500,000 with $27,500 in total commissions produces an amount realized of $472,500 before cost basis.5Internal Revenue Service. Publication 523 (2025), Selling Your Home
This matters most when your gain exceeds the federal exclusion. Single filers can exclude up to $250,000 of capital gain on the sale of a primary residence, and married couples filing jointly can exclude up to $500,000, provided they meet the ownership and use requirements.6Internal Revenue Service. Topic No. 701, Sale of Your Home For most homeowners the exclusion covers the whole gain. On a high-appreciation property, every dollar of commission paid directly reduces the gain that exceeds it.
One detail catches sellers at tax time. Form 1099-S reports the sale to the IRS at the gross sale price without subtracting commissions. The IRS instructions state that gross proceeds should not be reduced by transferor expenses like commissions.7Internal Revenue Service. Instructions for Form 1099-S The number on your 1099-S will look higher than what you actually pocketed. You claim the commission deduction when you file your return, not on the 1099-S itself.