How Much Commission Does a Real Estate Broker Receive?
When you sell your home, you may wonder how much real estate commission you’ll pay, how those commissions are split, and how much you’ll profit from the sale. The average total commission on a home sale is 5% to 6% of the total sale price, which is typically paid by the seller. The listing agent and buyer’s agent split that commission and then pay part of their earnings to their broker.
In this article, we explain how much real estate commission you’ll pay to sell your home and how the commission is split between the brokers and the agents. To better answer your questions, we spoke with top-performing agents Rick Ruiz, who sells nearly 50% quicker than the average Las Vegas agent; and Robert Dombrowsky, who works with over 85% more single-family homes than the average Fair Lawn, New Jersey agent.
How are real estate agents paid?
Real estate agents are licensed professionals who work for a real estate broker or brokerage firm. When an agent gains enough experience they can branch out on their own as a broker. According to the National Association of Realtors (NAR), 88% of agents work as independent contractors, not employees.
Agents are typically paid a commission on their sales, but some are paid a salary plus commission on their sales, and a minority are paid a salary only.
The 5% to 6% commission on a home sale is typically split 50/50 between the listing agent and the buyer’s agent, with 2.5% to 3% going to each. But the agent doesn’t receive the full amount. How much an agent is paid depends on the broker they work for.
According to Glassdoor, the average salary for real estate agents is $107,156, which may range between $45,000 and $236,000.
However, today’s competitive market has increased the number of new agents, which has increased competitiveness between agents. Dombrowsky believes this has caused a widening salary gap between top sellers and average sellers.
“The agent who has less experience, who works exclusively as a buyer’s agent, or who is doing the business part-time is going to be making less because they’re not always winning the bidding war,” he explains.
Who pays the real estate agent’s commission?
As stated earlier, the seller typically pays the agents’ commission. However, the seller doesn’t pay this directly to the agents. The escrow or settlement company that is overseeing the closing distributes payment, including the commission checks to each broker at closing. The listing agent and the buyer’s agent then receive their commission from their broker.
Here is what the distribution of a 6% commission might look like on a $350,000 home if both agents receive 50% of their commissions and each brokerage takes half of that:
- $350,000 x 6% = $21,000 total commission payment
- $21,000 split 50/50 between listing and buyer brokers = $10,500 paid to each broker
- $10,500 split 50/50 between each broker and each agent = $5,250 paid to each agent
How much commission does a real estate broker receive?
A real estate broker is a real estate agent who has obtained a state real estate brokerage license and has in-depth knowledge of the real estate business. A brokerage manages the transaction, ensures the agent complies with state and local regulations, and assumes liability for the transaction.
The broker’s commission pays for any services or supplies the brokerage provides for its agents. This includes payment for managing the transaction and can include MLS (multiple listing service) input and management, use of proprietary apps, print and online marketing/advertising, lead generation, lockboxes and signage, and access to professional services such as deep cleaning, staging, and photography.
Not all agents use the services offered by their brokerage. Some more experienced agents may perform the services themselves and/or hire them out to other professionals. Ruiz explains:
“Most brokerages have a team that will provide services. But I’ve always treated my book of business and my day-to-day real estate activities like a business. So, I’m not sitting around waiting on my broker to get my clients ahead, I’m going to be the one spearheading it.”
How much commission a brokerage receives depends on its business model. Some brokers receive 50% of their agents’ commissions. Some brokers reduce their commission after a certain dollar amount; others reduce their commission as agents gain experience. Still, others are willing to negotiate the commission split with their agents. Brokers may also receive an added percentage of the sale as a desk fee and/or franchise fee.
Here are the (agent/broker) commission splits for some of the top brokers in the nation:
- Compass: starting at 80/20
- HomeServices of America: starting at 80/20
- RE/MAX: starting at 60/40
- Keller Williams: 70/30
- Century 21: 50/50
- ExP: starting 80/20
According to Glassdoor, the national average salary for real estate brokers is $141,603.
Will I pay a higher commission to a Realtor®?
Although the terms may be used interchangeably, all Realtors® are agents but not all agents are Realtors®. A Realtor® is a licensed real estate agent who is also a member of the National Association of Realtors (NAR). A Realtor® may belong to one or more of NAR’s 1,100 associations or boards on a national, state, or local level.
An agent who is also a Realtor® adheres to the NAR’s strict code of ethics. When you hire a Realtor®, you receive this high level of professionalism at no additional charge, which means you would not pay more commission to a Realtor® than you would to a real estate agent.
Will I pay a higher commission to a real estate team?
A real estate team is a group of agents that share the workload and commissions of their real estate transactions. The team is mentored or led by a licensed and experienced team leader.
“A team is almost a company unto itself. Team leaders may have such a huge following and so much business that they are not able to service all of it, and so they take on members to fill certain roles. You can have huge teams where the team lead provides training, leads, and administrative services,” explains Dombrowsky.
The advantage of hiring a real estate team is having access to two or more real estate professionals for your home sale at the same commission rate a single agent may charge. Team members may be licensed or unlicensed agents or specialists with expertise in one or more of the services you require, including detailed listing, staging, photography, marketing, and more.
The drawback of hiring a real estate team for your home sale is that you may not be working directly with the agent that you hired.
How can I save money on real estate commission?
Negotiate a lower commission with your listing agent
Many homeowners don’t realize that the commission that they pay to the seller’s agent is negotiable. In fact, in today’s competitive market, many agents come to the seller’s home prepared to negotiate and still provide comprehensive services.
Additionally, during negotiations with the buyer, you may ask the buyer to pay their agent’s commission.
“Today’s consumers are used to lower costs. Advances in technology have added efficiencies and made it easier for agents to provide full value at scale. And competition between agents has also reduced rates. Because the market value for homes today is a lot higher, there’s a lot more room for the agents to charge a discounted commission and still be compensated handsomely,” explains Ruiz.
A couple of things to remember when negotiating a lower commission:
- It’s typically not in your best interest to eliminate services when negotiating commission. Most homeowners aren’t skilled enough to perform the expert services a top agent provides.
- The commission you pay is a motivator. If you reduce the agent’s commission too much you may also reduce the agent’s motivation.
- You may not get the best services from an agent who will work for a cut-rate commission.
“At the end of the day, there’s a balance. You have to ask: Do I want that Realtor® that’s willing to work for that rock-bottom compensation?” says Ruiz.
Eliminate commission entirely with for sale by owner (FSBO)
One way homeowners choose to save money on broker fees is to sell by owner, known as FSBO. A few things to consider when selling your home yourself:
- You’ll have to do all the legwork yourself. This includes listing and marketing your home. You’ll be in charge of finding the answers to all of your selling questions.
- You’ll still have to hire professionals. This includes a real estate attorney, a titling service, an escrow company, and any other professionals required by law.
- Homes sold FSBO tend to sell for less. Top agents typically sell homes for 16% more than homeowners do on their own.
According to a 2020 NAR report, FSBO sales account for only about 7% of home sales.
Pay a reduced commission to a discount broker
You may be able to save a little on your home sale by listing with a discount brokerage. A discount broker provides basic real estate services – including listing, documentation, and transactional services – for a flat fee or a reduced commission (usually around 1.5%). The services they offer may be limited to listing, documentation, and transactional services. Some brokers offer full services, including the services of an in-person agent.
Keep this in mind when considering a discount brokerage:
- What you save in commission you may lose in the sale. Top agents typically sell homes for 6% to 10% more than lesser-experienced agents. This means your 1.5% savings may actually cost you more in profits than simply paying the higher commission.
- The discount may be less than you think. On top of the fee you pay a discount brokerage, you’ll still pay the buyer’s agent a 2.5% to 3% commission. Additionally, some discount brokerages have hidden or minimum fees and some sell their services a la carte, which can add up fast.
- You could receive limited in-person support. The services you receive may be less robust or personalized than what you’d receive from a top real estate agent. Additionally, if you receive services from an in-person agent, that agent may be busier than a full-commission agent, less motivated to the best price on your sale, and may be less experienced than a top agent.
Partner with a top agent who can get you the best possible price on your home sale
The commission that you pay to a top-selling agent is well worth the cost for the expertise and guidance you receive on your home sale. Because homes sold by top agents earn up to 10% more than those sold by average agents and 16% more than those sold FSBO, the amount you’ll pocket at closing will be well worth the investment.
If the 5% to 6% average commission seems high, keep these things in mind:
- Commission pays for the many professional services required to sell your home.
- Commission motivates your agent to work harder and get a better purchase price on your home.
- Commission is split multiple ways, between the brokers and agents involved.
- You can negotiate the agent’s commission and still receive full services.
If you’re wondering how much you might pay a top real estate agent, we can help. Our commission calculator provides an overview of the current agent commissions in your area so you can get an idea of how much it costs to hire a top real estate agent to sell your home.
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