How Real Estate Commission Works — and Who Pays It

The Basic Structure of Commission

When a home sells, a commission — calculated as a percentage of the final sale price — is paid to the brokerages representing the parties involved. Traditionally, this total commission is split between the listing agent's brokerage (representing the seller) and the buyer's agent's brokerage.

Each brokerage then pays its respective agent based on a pre-arranged internal split. A newer agent might receive a smaller portion; a high-producing agent might keep a larger share. The commission only becomes payable when the transaction closes — agents do not receive payment simply for showing homes or submitting offers.

For context on how this compares to commission structures in other service industries, see how travel agencies earn their fees.

Who Actually Foots the Bill

Sellers have traditionally paid the entire commission out of the proceeds at closing. Because the buyer's financing typically encompasses the purchase price, buyers have indirectly contributed to agent compensation through the price they pay — but they rarely wrote a separate check for it.

This arrangement has evolved. Following a significant legal settlement involving the National Association of Realtors that took effect in 2024, the rules around how buyer's agent compensation is communicated changed. Sellers are no longer required to offer compensation to a buyer's agent through the Multiple Listing Service (MLS). Buyers must now sign a written representation agreement — outlining agent compensation — before touring homes.

These changes increase transparency and make commission a more explicit, negotiable element for both sides of a transaction. Whether buyers ultimately negotiate a lower purchase price to offset their agent's fee, or sellers offer concessions to cover it, the actual flow of money varies by deal.

Negotiating Commission — What You Should Know

Commission rates are not set by law, a trade association, or any government body. They are privately negotiated between an agent (or their brokerage) and the client. This means sellers can — and should — discuss rates before signing a listing agreement.

Factors that commonly influence what rate an agent will accept include local market conditions, the expected sale price, property complexity, and the services included. A full-service agent who manages marketing, staging consultation, and open houses may command a different rate than one offering a limited-service arrangement.

Before committing to any agent, it's worth asking pointed questions about their compensation structure. Our guide to questions worth asking a real estate agent before signing covers exactly this ground.

Understanding what services are actually included is equally important. See what a real estate agent actually does for a plain-language breakdown of agent responsibilities.

Why Commission Structure Matters to Buyers and Sellers

For sellers, commission directly affects net proceeds. On a $400,000 home, a 5% total commission equals $20,000 — a meaningful figure relative to equity, closing costs, and moving expenses. Knowing this figure upfront allows sellers to model their realistic take-home amount before listing.

For buyers, the newer transparency requirements mean they should understand what their agent earns and what services that fee covers. In some cases, a seller may offer to cover buyer-agent compensation as part of negotiations; in others, buyers may need to account for this themselves.

Commission is just one element of the broader transaction cost picture. Our complete overview of real estate services from contract to closing maps out all the professionals and fees involved in a typical deal.

Persistent misconceptions about how agents are paid also color how buyers and sellers approach negotiations. For a clear-eyed look at what's fact and what's fiction, see our article on common myths about real estate agents.

This article provides general educational information about real estate commission structures and is not legal, financial, or professional real estate advice. Consult a licensed real estate professional or attorney for guidance specific to your situation.