How Real Estate Commissions Work: A Guide to Commissions

A real estate commission is a percentage of a property's purchase price that is paid to the real estate agents and brokers that facilitated the purchase and sale of a property. Real estate agents typically make their money through their commission and do not make a commission (or get paid) unless the house sells. The listing agent (or seller’s agent) and the buyer’s agent and their respective brokers usually split the total real estate commission after the home sale. The commission percentage varies from state to state and agent to agent. Homeowners are typically responsible for paying the real estate commission rate with the money earned from the property sale, which is often factored into the home’s listing price. Here is an overview of how real estate commissions work. - __Real estate professionals are paid via commission__. Instead of charging an hourly rate, [real estate agents](https://www.masterclass.com/articles/what-is-a-realtor-explained) who work with buyers or sellers will collect their commission once the property sells. The percentage of commission is a portion of the home’s sale price outlined in the listing agreement. This commission is a fee for the work that the agents and brokers do to facilitate the sale or purchase of a house. - __The listing agent and the buyer’s agent have different responsibilities__. The listing agent—who services the seller of the property—is responsible for things like staging the house, marketing it, setting up open houses, and listing the property on a multiple listing service (or MLS). The buyer’s agent will typically scout properties, set up inspections, coordinate with real estate lawyers, and negotiate the price of the house. - __When the house sells, the agents and brokers split the commission__. Once the property sells, the commission is split evenly between the listing agent, the listing broker, the buyer's agent, and the buyer's broker. The commission comes out of the home’s sales price, so the buyer is technically responsible for it. However, a home’s sale price usually accounts for the commission fee. The average percentage rate of a real estate agent commission varies depending on location of the sale and the agents or brokers rates. Commission rates are always negotiable, but most real estate sales commissions fall between four and six percent of the sales price. The seller pays this amount, which will be divided amongst both party's agents and real estate brokers. For example, if the commission is six percent and each agent is splitting the commission 50/50 with their broker, each broker and agent would collect 1.5 percent of the property's selling price. Sometimes brokers will take a lesser percentage of the sales commission to reward an agent for their work, but they will always take some cut of the commission to recoup any marketing costs. The home seller is usually responsible for the entire real estate commission. However, home sellers will often include the commission price in the final sale price of the home, making the home buyer indirectly responsible for the commission fee. The home buyer is also responsible for any closing costs, appraisals, and other fees related to the sale of the property. All you need is a [MasterClass Annual Membership](https://www.masterclass.com) and our exclusive video lessons from prolific entrepreneur Robert Reffkin, the founder and CEO of the real estate technology company Compass. With Robert’s help, you’ll learn all about the intricacies of buying a home, from securing a mortgage to hiring an agent to tips for putting your own place on the market. If you’re considering working with a real estate agent to buy or sell a home, it’s wise to get a sense of how real estate commissions work.