How Do Realtors Get Paid? What You Need to Know in 2024

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By Steve Nicastro Updated February 23, 2024

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Realtors get paid at the closing of a home sale and get compensated from the seller's proceeds, with the average nationwide commission rate totaling 5.49%.[1] This amount is divided between the buyer's agent (averaging 2.66%) and the seller's agent (2.83%). 

For example, on a $400,000 home sale with a 5.49% commission rate, sellers could pay approximately $22,000 in total commissions, leaving them with proceeds of $478,000 before other closing costs.

While sellers typically cover the costs, they're not fixed, and so you can negotiate realtor fees to try to score a lower rate. Commission rates also vary depending on location and property type, among other factors.

To better understand potential realtor fees, consider consulting a local realtor for a free home valuation report and a seller's net sheet. These tools estimate your net profit after the sale, providing valuable insights. Connect with a local realtor through Clever for an accurate assessment.

How realtors get paid at closing

Realtors get their commission upon completing a home sale, a process known as "closing" or "settlement." 

At this stage, the seller's title or escrow company oversees the transaction, prepares closing statements, and disburses funds. The commission payment gets transferred from the seller's title or escrow company to their brokerage.

Commission Comparison Chart

Most real estate experts don't view realtor commission as being part of a seller's closing costs. These costs typically range from 1-3% of the home's sale price and cover expenses like title and escrow fees, transfer taxes, and recording fees.

Also note that real estate agents typically don't earn 100% of the commission from a sale, and brokerages have varying commission split policies. For instance, Anywhere Real Estate, which includes brands like CENTURY 21® and Coldwell Banker®, reported an 80% commission split in 2022.[2]

Once the seller's brokerage receives the commission, they distribute the buyer's brokerage's share, deduct any fees, and disburse the remainder to the agents. Payment often gets made via check or ACH deposit to the agent's bank account.

Is a commission model good for home sellers?

Supporters of the percentage-based commission structure argue that it incentivizes agents to speed up the sale process and secure the best possible price for the property.

The rationale is straightforward: Agents get paid only upon completing the sale. Should they fail to secure a favorable offer, they don't get paid and forfeit the time and resources invested in marketing the property.

Agents also earn a higher commission when the property sells for a greater price, giving them a vested interest in achieving higher offers.

Do sellers pay all realtor fees?

The seller typically covers the realtor fees for both parties, including the buyer's agent fee. These expenses are deducted from the home sale proceeds, sparing the buyer from any additional out-of-pocket costs for their agent's services.

This industry norm is upheld by the National Association of Realtors (NAR), which mandates that brokers affiliated with Realtor-operated MLS platforms offer compensation to buyer's agents.[3] Given that over 86% of home sales occur through the MLS, it's customary for sellers to cover the buyer's agent's commission.[4] 

The one exception is if the buyer chooses not to be represented by an agent. This scenario is uncommon, as statistics show that 89% of home buyers enlisted the help of a real estate agent or broker in 2023, up from 86% the previous year.[5]

Sellers are typically bound by contractual obligations to pay commission fees and can't refuse to pay a buyer's agent. The listing agreement or contract establishes the agreed-upon commission before the home sale closes. Any refusal to follow these terms could result in contractual conflicts and legal consequences.

Who sets realtor commission rates?

Typically, sellers negotiate the commission with their agent before listing their home for sale. This negotiation may result in an agreed-upon rate of 2.5-3%. 

Sellers also establish the percentage offered to the buyer's agent, which recommendations from the listing agent may influence. Factors such as local norms, property type, projected sales price, and home condition or desirability can inform this decision.

The commission rate is documented in the listing agreement. This agreement specifies fees and outlines terms authorizing the agent to market the home, including the initial listing price and what items will be conveyed with the property.

Does an exclusivity agreement affect commissions?

An exclusivity agreement grants the agent exclusive rights to market your home and collect payment upon sale. In rare cases, you might owe a commission even if the house doesn't sell, typically if the agent procures a willing buyer but the seller backs out.

Can negotiating commissions affect services?

Negotiating commissions can impact services, as agents may adjust the level of service offered, request assistance with marketing expenses, or extend the listing agreement duration. Negotiation success may be more likely if nearby homes are selling very quickly.

Is a real estate commission worth it for the seller?

Most sellers find real estate commissions worthwhile as they often lead to higher home prices. A recent study by Clever found that seven in 10 sellers think a good realtor is worth every penny of their commission.[6]

Full-service agents bring years of expertise, area knowledge, transaction experience, and negotiation skills, resulting in homes frequently selling at or above the asking price. Industry data indicates that homes sold with an agent typically fetch around $100,000 more than those sold FSBO.[7]

The work of a full-service agent includes:

  • Prospecting for clients
  • Crafting client proposals with pricing strategies
  • Listing and marketing properties to attract buyers
  • Negotiating offers and advising the seller on how to proceed
  • Guiding sellers through the closing process. 

A skilled realtor can also provide invaluable assistance in avoiding costly legal errors. According to recent research by Clever, over one-third (36%) of FSBO sellers encountered legal issues due to the absence of an agent.[8]

Alternatives to a percentage-based commission

Various alternatives to the traditional percentage-based commission model for realtors have emerged to accommodate the evolving needs of sellers seeking cost-effective options. These alternatives include:

  • Flat fee MLS listing services. Sellers can pay a small fee upfront to list their property on the MLS, a widely used real estate platform. This option provides significant exposure for the property, as NAR found that approximately 86% of sellers utilize the MLS for listings.
  • 1% commission realtors. Some sellers opt for real estate agents who charge a flat fee of 1% of the final sale price, which is lower than the typical 2.5–3% commission. However, it's crucial to thoroughly understand the costs and terms associated with working with these agents and to research their reputation through recent online reviews.
  • Salaried agents. While uncommon, some agents are paid a salary by their brokerage, with commissions earned from selling homes. This model, use by companies like Redfin, may afford agents more time to focus on individual properties but could diminish their incentive to sell a house quickly and for top dollar.

How realtors get paid: The bottom line

Realtors are compensated at closing, typically deducted from the seller's proceeds, with fees averaging around 5.49%. Negotiating fees is an option, but studies find that very few sellers are able to successfully negotiate a lower rate.

Sellers can explore alternatives like Clever Real Estate, which has pre-negotiated the listing agent's commission to just 1.5%, providing significant savings.

Related links

Article Sources

[3] National Association of Realtors – "NAR's Participation Agreement.".
[4] National Association of Realtors – "Quick Real Estate Statistics.".
[5] National Association of Realtors – "Highlights from the Profile of Buyers and Sellers.". Pages 131. Updated 2023.
[7] National Association of Realtors – "2023 Profile of Home Buyers and Sellers".

Authors & Editorial History

Our experts continually research, evaluate, and monitor real estate companies and industry trends. We update our articles when new information becomes available.

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