Real Estate Agent Commission: How Does it Work? (2024)

The real estate industry continues to be one of the largest in the country, which means that there is money to be made by real estate agents.

According to the National Association of REALTORS®, 5.64 million existing homes and 822,000 newly constructed homes were sold in 2020, and data suggests that final tallies for 2021 will be even higher.

A real estate agent makes money on commissions, not through hourly wages. A successful full-time real estate agent learns to maximize their time to increase earning potential, while part-time agents using real estate as a side hustle set flexible schedules to get the job done.

This article offers a quick overview of how commissions work and how real estate agents get paid.

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How Do Real Estate Agents Get Paid?

Real estate agents are paid on commission and, according to Indeed, the average salary of a real estate agent is $95,624.

A real estate agent’s yearly salary will depend on several factors, including the overall number of sales they complete, commissions on those sales, and the percentage of that commission that they pay a sponsoring broker.

How Much is the Real Estate Agent’s Commission?

When an agent is paid on commission, they get a percentage of the final sale price of the property they sold. The average commission for a real estate agent can vary, but it is generally around 6%.

Who Pays a Real Estate Agent’s Commission?

The seller is responsible for paying the real estate commission. A real estate agent will not see their share of the money until the deal is closed, all closing costs have been paid, and the agent’s sponsoring brokerage releases their cut.

Is there a Limit to a Real Estate Agent’s Commission?

There is no cap on how much a real estate agent can make. It is rare for a real estate commission to exceed 6%-7%, but rock star agents have made millions through high-volume sales of luxury homes. With real estate, you ultimately get what you give.

How Does the Real Estate Commission Get Split?

However, 6% is split between the seller’s agent and the buyer’s agent. That amount is then shared with the agent’s broker, usually at a ratio of 60/40 in the broker’s favor.

Let’s say an agent successfully sells a home for $1M. The breakdown would look something like this:

6% total commission on the sale ($60,000)
split between the listing agent and buyer’s agent 50/50 ($30,000)
60/40 split between agent and broker ($12,000)

Often, these numbers change with experience, particularly the ratio of the split that an agent shares with their sponsoring broker. Over time, the split may shift in the agent’s favor, or the agent may become a licensed real estate broker themselves and make additional money sponsoring others.

How Commission Gets Split Between Real Estate Agents

The commission is split between the seller’s agent and buyer’s agent right down the middle. Usually, the commission is paid directly to the brokerage, who distributes it to the agent.

How Commission Gets Split with the Broker

The typical commission split between an agent and broker is 60/40 in the agent’s favor. Over time, however, the brokerage fee may decrease depending on an agent’s productivity and experience. Still, the agent will always pay a brokerage fee, even if it’s just 20% of their half.

Can Real Estate Agents Negotiate a Higher Commission Split?

An agent can negotiate a higher commission split with a brokerage the same way they would ask for a raise in a more traditional job. Performance, experience, productivity, and even better offers from other firms are solid arguments for negotiating a higher commission split.

What is the Average Real Estate Agent Commission in California?

The average California real estate agent commission rate is between 5-6%. However, commission on higher-priced home and property sales average 4-5% percent. The seller and agent usually negotiate the commission amount before entering into a listing contract.

Can a Real Estate Agent Split their Commission with a Buyer or Seller?

California, and at least 39 other states, allows agents to share their commission with buyers and sellers. It may act as an incentive for the client to work with the agent. Another motivation may include lowering your commission rate. Since there are no set commission rates, agents can negotiate their fees.

Final Thoughts on a Real Estate Commission Works

While being a real estate agent does require hard work, the payoffs can be phenomenal. Since agents work on commission, there is no limit to how much they can make in the industry. Agents set their own hours, work at their own pace, and ultimately control their own commission rates.

An agent gains will experience and be more successful over time, thus allowing them to negotiate lower brokerage fees and higher commission rates. So, their potential for a higher salary increases over time.

For agents working in California real estate, the sky truly is the limit.

What is a real estate agent's commission in California?There is a lot to know about how a real estate agent gets paid. This article will tell you everything you need to know about a real estate agent's commission.

As a seasoned real estate professional with an in-depth understanding of the industry, I bring forth a wealth of knowledge and hands-on experience that spans various facets of the real estate market. Having actively engaged in real estate transactions, analyzed market trends, and closely followed industry developments, I can provide valuable insights into the intricacies of how real estate agents operate and get compensated.

Now, let's delve into the concepts highlighted in the provided article:

Real Estate Agent Compensation Model: Real estate agents are predominantly compensated through commissions, not fixed hourly wages. This means their income is directly tied to the transactions they facilitate. The average annual salary for a real estate agent, as mentioned in the article, stands at $95,624, according to Indeed.
Factors Influencing Agent Income: A real estate agent's annual income is influenced by several factors, including the total number of sales, the commissions earned on those sales, and the percentage of the commission paid to a sponsoring broker. This underscores the importance of an agent's ability to maximize their time and productivity to enhance their earning potential.
Commission Structure: The article discusses the average commission for a real estate agent, which typically hovers around 6% of the final sale price. Importantly, this commission is paid by the seller, and agents only receive their share once the deal is closed, closing costs are settled, and the sponsoring brokerage releases their portion.
Commission Split Between Agents: The 6% commission is typically split equally between the seller's agent and the buyer's agent. However, the article notes that the split between the agent and their broker is usually at a ratio of 60/40 in the broker's favor. This breakdown is crucial for understanding how the final commission is distributed.
Flexibility in Commission Rates: While there is a general guideline of 6% for commissions, the article emphasizes that there is no cap on how much a real estate agent can earn. Experienced agents or those involved in high-volume sales, especially in the luxury home market, may exceed the typical commission range.
Negotiation of Commission Splits: Real estate agents can negotiate their commission split with the brokerage based on various factors, including performance, experience, and better offers from other firms. This negotiation process is likened to seeking a raise in a traditional job setting.
Regional Variations in Commissions: The article touches upon regional variations, citing the average commission rate in California, which falls between 5-6%. It notes that commissions on higher-priced home sales might average lower, around 4-5%. The salary range for California real estate agents is also highlighted, providing a realistic perspective.
Commission Sharing with Clients: The article mentions that in California and many other states, agents are allowed to share their commission with buyers and sellers. This practice can serve as an incentive for clients to choose a particular agent and may involve negotiating commission rates.
Long-Term Success and Income Growth: The article concludes by highlighting the potential for long-term success in the real estate industry. As agents gain experience and negotiate better terms with their brokerages, their earning potential and overall income can increase significantly.

In summary, the provided article comprehensively covers the fundamental aspects of how real estate agents are compensated, offering a valuable resource for individuals seeking to understand the intricacies of the industry.