How Much Is Real Estate Agent Commission And How Does It Work?

Whether you’re buying or selling a home, a real estate agent or Realtor can be an invaluable ally. They can help you shop for or list a home, negotiate an offer and close the deal. For the past few decades, the seller of a home paid a commission of 5% to 6% of the purchase price, which was split between the seller’s agent and the buyer’s agent.

However, the recent settlement of a class action lawsuit has opened up for negotiation both how much agents are paid and who pays them. Here’s a look at how agent commissions work and what might change going forward.

Key Takeaways:

How Does Commission For Real Estate Agents Work?

In recent years, the custom when a home is sold is for the seller to pay a commission that’s split between the buyer’s agent and the seller’s agent unless both parties agree to a different arrangement.

“Real estate commissions have always been negotiable,” says Adie Kriegstein, a real estate agent and founder of the NYC Experience Team at Compass in New York City. “In most states, that commission is both set and paid by the seller, and, as such, it is discussed and agreed upon between a seller and their agent.”

The agents typically have split a commission of 5% to 6% of the home’s sale price, though they might owe a portion of it to their brokerage. A 6% commission on a house that sells for $400,000 would be $24,000, so the seller would pay the agent for each side $12,000.

In March 2024, the National Association of Realtors agreed to change its commission rules to settle a class action lawsuit filed by a group of homeowners. NAR agreed to eliminate its rule that sellers pay both parties’ agents in a sale and another that required agents to list homes only on NAR-affiliated databases. These changes will take effect in July 2024 and are expected to require the parties in a sale to explicitly agree to their agents’ commission rate, as well as to who pays the commission.

Proponents of the change argue that this will reduce commission fees for both buyers and sellers, and that buyers may have to start paying a share of the commission. They also claim it will reduce home sales prices and instances of steering. Critics say reducing commissions will complicate home sales and may force agents out of the business.

“Buyers may become responsible for paying their agents some or all of their commission, depending on what – if anything – the seller is offering a buyer’s agent as compensation,” Kriegstein says.

Commission Fees For Buyers

Buyers generally have not needed to pay a commission to their agent because it’s been customary for the seller to pay it. However, there are cases where the buyer and seller agree to split the commission fee in some way. For example, buyers in competitive markets have offered to pay at least part of the agents’ commission to sweeten their offer to the seller.

The NAR rule changes may make this kind of arrangement more common, though it likely will take some time for a new norm to emerge in the market.

Commission Fees For Sellers

The seller typically has paid the real estate commission fee for both their agent and the buyer’s agent out of their proceeds from the sale. As a result, the seller often accounts for the cost of commissions when they set the home’s asking price.

The norm has been 5% to 6% of the home’s sale price. However, with buyers and sellers soon needing to negotiate this point directly, the rate’s expected to vary and possibly decline. And if it becomes common for buyers to start paying some of the commission, sellers will pay less and keep more of the proceeds for themselves.

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How Much Commission Do Real Estate Agents Make?

While a few agents earn a salary, most are paid only by commissions. The commission rate is typically 5% to 6% of the purchase price, split between the buyer’s agent, the listing agent and their respective real estate brokerages.

Home prices can vary widely depending on where in the country you live. The table below shows what you can expect to pay for different sales prices with a 5% real estate commission.

The changes to NAR’s commission rules are expected to reduce agent commissions.

States With The Highest Average Commission Rate

The average real estate commission rate varies by location. Here are the states with the highest average commission rate in 2024:

States With The Lowest Average Commission Rate

Now let’s look at the states with the lowest average commission rate in 2024:

Is It Possible To Negotiate Real Estate Commission Fees?

Yes, and it likely will become an essential step in buying or selling a home. Buyers and sellers have always been able to ask their agents to accept a lower commission rate, especially if they’ve done more of the heavy lifting in the process. Agents representing both the buyer and seller – known as dual agency – may take a lower commission rate because they don’t have to share it. Also, the parties can negotiate a sale where the buyer pays some of the commission, perhaps in exchange for a slightly lower purchase price.

FAQ

Here are answers to common questions about real estate commission rates.

The Bottom Line

An agent can be a big help when you’re buying or selling a home. While the seller has usually been responsible for paying the agents a commission on a home sale, legal changes have opened up the process to negotiation. This means buyers and sellers will need to take a more direct role in deciding who pays the agents and how much. Only time and the market will tell if these changes make buying a home easier or more affordable.

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Jamie Johnson contributed to the reporting of this article.