Real Estate Agent Commissions - How Much Do They Make?

How much commission does a real estate agent make on each home sold?

5 Answers

Real estate agent commissions or realtor commissions are fees paid to the listing (representing the house for sale) and selling (representing the buyer of the house) agent at the close of a real estate sales transaction. These fees can vary from one real estate deal to the next, or real estate agency, or market region. Realtor commissions are usually determined by the real estate office, agency, or market region.

Commissions are shared between the listing and selling agents. Furthermore, the "house" or real estate agency for each agent gets a cut. An average commission breakdown follows:

House sales price: $200,000

Commission percentage: 6%

Total commission: $12,000 (6% of $200,000)

Listing agent percentage: 3% (of $200,000) = $6,000

Selling agent percentage: 3% (of $200,000) = $6,000

But each of the agents may not actually pocket $6,000. The real estate agency still needs to receive its percentage of the commission.

Real estate agents and brokers need the agency for different reasons.

The real estate agent needs the agency since it is illegal for a real estate agent to represent buyers or sellers in a real estate transaction without first signing with a broker's agency.

The real estate broker needs the agency since it is expensive and difficult to perform as a solitary broker without the overhead, i.e., advertising, marketing, phone, desk, and so on, that the experienced agency provides.

The real estate agency provides many necessary services for both agent and broker. Of course the broker can start his or her own agency beginning at $10,000-$20,000. As a small business owner, the broker agency can look forward to startup costs that include physical location and building costs, liability insurance, broker and association dues, state employee costs and taxes, small business taxes, and so on.

In return for this service, the agent gives the agency a part of his or her commission (agency fees) depending on the agency commission structure. The average commission structure between agent and agency varies. For example, a commission split between agency and agent could be 50/50, 60/40, 70/30, or 80/20 depending on the experience and value that the agent brings to the agency.

So, instead of the agent receiving the full $6,000 in the above example, his or her commission may actually be $3,000 (50/50 split, agency gets $3,000) for a novice agent, or it could be $4,800 (80/20 split, agency gets $1,200) for a seasoned agent.

The 6% ****real estate agent commission on a house sales price may also vary a little less, a little more depending on the region. Commission splits between listing and selling agents can also vary, i.e., 2%, 3%, or 4%.

Also, an agency can perform "in house" sales where both the listing and selling agents reside within the same agency. An agent can "double-end" a real estate transaction, representing both the listing and selling of the property with proper disclosure. In this case, the agent keeps the full 6% minus the agency cut and other operating costs.

Of course, a FSBO (for sale by owner) may choose to opt out of using a professional real estate agent. That is, homeowners may choose to save the real estate agent commission costs by selling their homes themselves. But, prospective buyers may shy away from the homeowner because of his limited expertise in real estate transaction documents, intentionally or unintentionally omitting property details, sharing of closing costs and property fixes, and so on. Plus selling one's home is time consuming and inconvenient: holding open house and advertising. Using a professional real estate agent is the most assured way of maximizing both the seller's asking price and buyer's offering price.

Another advantage of using an agency or agent is that most agencies subscribe to a multiple listing service (MLS). The MLS helps to maximize the exposure of your home to other agents and buyers.

In summary, real estate agent commissions, vary between real estate transactions since commission percentages can differ between agencies and real estate regions.

Sales commissions are split a lot of ways. A real estate agent who lists a property for sale traditionally is paid a percentage of the home's selling price, and the listing agent typically offers roughly half of that commission to an agent who brings a buyer into the transaction.

There is a declining share of real estate commissions that agents are experiencing. There are many companies that have sought to play a role in real estate transactions for a share of the commission revenue, and these businesses are having an impact on the compensation to agents who are directly involved in home sales.

Some real estate lead-generation companies (including some real estate companies) charge a fixed fee or a percentage of a real estate commission for connecting consumers with real estate agents, this referral fee is in addition to the commission split.

If agents are paying a 35 percent fee (or more) to a third-party (including the real estate company) who referred a consumer work with them, that could mean a 4 percent total commission rather than a 6 percent total commission for a real estate transaction.

Lets look at a commsion split scenario:

  • Agent Listed: $1,000,000 property at 5%* Commission: $50000 (Wow!)

  • Sold by Co-Broker: 2.5% Split: $25000 (Wow, again!)

  • Sub-Total for sales agent & company: $25000 (Not Bad ')

  • New Agent Company Split 50/50: $12500 (Not Great')

  • Advertising Fee Deducation from commission check: $2083 (some charge this fee for Buyer's Agents as well) Sub-Total: $10417 (... it took 6 months to sell the property)

  • Divide $10417 by 24 weeks: $434 (a week)

  • Agent puts in 40* hrs. a week: $10.85 (an hour) And agent still owe the taxes! OUCH!

Sales agents costs include and are not limited to self promos to get the listing, gas, car insurance and health insurance.

Some companies charge additional fees in their listing contracts. If the agent does not charge the customer the fee, some companies take that additional fee out of the agent's commission. $10,417 - $195 (approx. example of additional fee) = $10,322

Million dollar or Luxury Homes are being listed at 4% or less in Fairfield County. New agents are coached to negotiate for 5 and 6% because company policy is not to accept anything lower than 5% without management approval.

Some companies have an additional marketing fee for "luxury properties" at closing that the sales agent pays for. For this additional fee to the agent, an agent receives a limited amount of company made brochures, a limited amount of company made postcards and a limited amount of company run ads in a high-end magazine. Because luxury homes take longer to sell and the Seller demands more advertising, wants additional mailings or the agent runs out of brochures' the agent is responsible for customer satisfaction and the agent pays for these items; whether the agent sells it or not!

Referrals, whether it be the sales agent's real estate company, other agents or the relocation company, could cost the agent another 33% to 40% of the commission.

NOTE: Even though agents follow proper protocol and discuss commission negotiations with the company manager before offering deals to customers, companies rarely concede their portion of the commission. The agent is usually held responsible for the amount. An experienced agent with a higher split than 50 may be "docked" a percentage to make sure that the company does not lose any money.

All of the above does not include any additional mailings, any additional advertising (advertising that usually done at the discretion of the company) and promotions that you covered out of pocket.

Be clear on "roll backs", agents may make it up to 55 to 60% only to roll back another 5% during the company's calendar.

It is a slippery slope to success! "WHAT'S IN YOUR CONTRACT MAY BE WHAT'S IN YOUR WALLET"

There are also some addtional fees that a realtor may have to pay. This depends upon what contract the realtor has with their broker and what state they work in. I don't believe these were mentioned in the previous answers.

  • yearly MLS fees

  • yearly fees associated with lock/key boxes

  • yearly mandatory continuing education to keep their license current

  • yearly local and national association dues

Side note: Some may think car insurance? Are you serious? You have to pay that anyway. Well my friends realtors have to pay a premium for auto insurance because they may have clients in their vehicle.

It is important to note that there is no industry set commission level. Brokerages often do determine limits that they will accept for their services but they are ~ by law ~ not allowed to work this out with other brokerages.

Each home buyer is allowed and even encouraged to discuss this with their agent or broker and negotiate the best deal they can for the services provided by that agent.

With that said, it is not uncommon to see 6% as a typical fee for a full service agency, this amount is usually divided between both buying and selling agencies / brokerages as well as the agents on both side of the deal. The amount of commission is set between the listing agency and the home seller and is stated on the listing with all other pertinent information about the listing.

The agent working for the home buyer simply gathers this information from the listing and finds what his possible earnings are relevant to each of the homes offered. If the buyers agent finds that the possible earnings on a given home are not sufficient then it is up to him to discuss this fact with the buyer in advance of seeing that property.