How Do Real Estate Agents Get Paid?

For many years, someone selling their home would usually pay a commission of 5% to 6% of the sale price to their real estate agent, who would then share that commission with the buyer’s agent, if the buyer had one. But new rules that took effect in 2024 changed how agents get paid, who pays them, and how much.

The changes—part of a settlement between the Department of Justice (DOJ) and the National Association of Realtors (NAR)—were designed to ensure transparency and fairness in home buying and selling, particularly on behalf of buyers. Ultimately, sellers are now forbidden from paying the buyer’s agent, whose fee, if any, will come directly from the buyer.

In the long run, the changes are expected to lower fees, saving money for buyers and sellers. Below, we’ll explain how real estate agents get paid and how recent changes will affect both buyers and sellers.

Commission-Based Compensation

Real estate agents earn most of their income from commissions on sales. They’re usually paid a percentage of the property’s sale price. In 2024, the median annual wage for real estate sales agents was $56,320, and the median annual wage for real estate brokers was $72,280.

Historically, the commission for the listing agent, who represents the seller, and the buyer’s agent was shared. It would come out of the proceeds from the house sale and would be paid for by the seller. However, that’s no longer allowed, per the 2024 NAR settlement.

Splitting the Commission

In almost every state, a real estate agent must work for or be affiliated with a real estate broker, who is licensed to manage their own real estate businesses. Brokers can work independently or hire real estate agents and split the earnings.

The split depends on how many parties are involved and what terms were negotiated. At a minimum, if an agent is brought in, the commission will be shared between the agent and the broker. How the fee is split depends on the broker’s advertised rates, targets hit, and the bargaining power of the agent. An experienced agent with a good reputation and strong network should be able to demand more.

An agent’s payout could be further diluted if they bring in help. Sometimes, an agent may collaborate with another agent and involve them in the deal.

Variations in Commission Rates

Real estate agent commissions vary considerably. It depends on the broker’s commission structure, how many people were brought in to close the deal, and the experience and bargaining power of the agent. Other important factors include the state of the economy, interest rates, supply and demand, competition, and property prices.

In a seller’s market, where demand exceeds supply, agents should have more leverage to command bigger fees while selling or buying at higher prices. Conversely, when there are more homes for sale than people looking to buy, they may have to lower fees.

Competition plays a role as well. When the market is flooded, lesser-known agents might have to lower rates to secure business. Location and property type are other big factors.

Alternative Compensation Models

Commission isn’t the only way real estate agents get paid. A small portion of them may seek alternative forms of compensation.

Flat-Fee Services

You may occasionally find agents charging a flat fee for their services. That could be a one-off upfront payment or an à la carte pricing model, through which each service provided, such as showing a property or writing an offer, comes with its own set cost.

The good thing about this charging method is its transparency. But on the other hand, the flat fee has to be paid upfront and can end up costing the buyer or seller more, or it could cost them less but limit the scope of services offered.

Hourly Rates and Salaries

In rare circumstances, agents could opt to charge an hourly rate for their services. There are also a couple of isolated cases of agents being employed by brokers and paid a salary for their work. For example, Redfin, an online property search website, pays the agents it employs a salary plus a bonus based on the price of every home sale they close.

Referral Fees

On top of a commission, hourly rate, or flat fee, real estate agents may earn money through referrals. The agent could strike a deal with a lender or relocation professional, for example, guaranteeing payment when they refer a client.

NAR Lawsuit Over Commissions

In 2024, the NAR agreed to pay $418 million in damages and change its rules regarding how commissions are set, advertised, and paid, after a jury ruled on behalf of a group of Missouri homeowners who claimed the NAR and certain brokerages were colluding to inflate commissions.

According to the DOJ, the NAR had recommended that Multiple Listing Services (MLSs) prohibit telling buyers how much of a commission has been offered by sellers to buyers’ brokers. “All or nearly all” MLSs concealed these fees from home buyers, the DOJ said. The concern was that if the buyers didn’t know the commissions being offered to their agents, those agents could more easily steer them toward properties whose owners offered higher commissions. It also meant buyers couldn’t negotiate lower fees from their agents, resulting in higher prices for their services.

Terms of the NAR-DOJ Settlement

Originally found liable for $1.8 billion in damages, the NAR agreed to the following rule changes, among others, as part of the settlement:

• Listing agents can no longer list their commissions on MLSs. This is intended to prevent them from luring buyer agents to steer their clients toward homes with higher commissions.
• Buyers must enter into a representation agreement with their agent before touring any homes. This is meant to offer buyers clarity regarding the agent fees and the opportunity to negotiate those fees. Buyer agents are expressly forbidden from receiving any additional fees from the seller or seller’s agent.

Who Pays the Commission?

Under the new rules, sellers will continue to pay their listing agents, and buyers will be solely responsible for paying their agents.

Industry analysts predict these rules will lower commission costs by as much as 50% in the long term. For one thing, the commissions sellers pay are likely to come down, perhaps lowering overall housing prices a bit, because the sellers won’t have to pay the buyers’ agents anymore.

On the other hand, though prices might sag a bit, buyers now face the added expense of paying for their agents themselves, which may make it difficult for some first-time buyers to get into the market. Yet the new transparency and the fact that they need to pay directly should at least open the door for buyers to negotiate fees.

Example of a Real Estate Commission

With commission rates basically unchanged for now, here’s how two agents would get paid under the new rules:

• Lucy wants to sell her house. She reaches out to an agent, who agrees to price the property, market it, negotiate offers, and get her the best deal in exchange for 3% of the transaction price.
• On the other side, Ben is looking for a house and agrees to pay an agent to help him search and negotiate the purchase in exchange for 2% of the transaction price.
• Ben eventually ends up buying Lucy’s house for $350,000. Based on that price, Lucy pays $10,500 in commissions (3% of $350,000), while Ben pays $7,000 (2% of $350,000).
• This money doesn’t all go to their respective agents. Usually, the agents’ brokers take a cut. For example, Lucy’s broker could keep 40% of the 3% commission, whereas Ben’s broker might operate on a 50% split. In those cases, from this transaction, Lucy’s agent would end up with $6,300 and Ben’s agent would collect $3,500.

The Bottom Line

Real estate agents earn most of their income from commissions on sales. But new rules regarding real estate commissions have changed the way agents are paid. Buyers must now pay their agents directly, rather than relying on the sellers to cover the commissions for both agents, as was previously standard. Meanwhile, sellers’ agents are prohibited from listing their commissions on MLSs. While the shift brings greater transparency and potential cost savings for both buyers and sellers in the long run, it could create a problematic expense for first-time buyers, who may have less cash on hand for commissions and a down payment.