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What Is A Real Estate Commission?

According to the U.S. Department of Labor (a real estate commission) is a sum of money paid to a licensed Real Estate Agent upon completion of a transaction, usually selling or buying real estate.  In this article, I am going to break it all down for you.  You will learn who pays your real estate commission, how your real estate commission is split and examples of how much money you will take home after splits.  In essence, as a Real Estate Agent we get paid for the transactions we close.  Once you close a transaction (sell or purchase) you will receive a real estate commission “check.”

All Real Estate Agents get paid a “real estate commission.”  We do not get a direct deposit on the 1st and 15th.  When you become a Real Estate Agent, you will not be guaranteed a salary.  All of your money will be paid to you in the form of a real estate commission.

 

Who Pays Your Real Estate Commission

“THE SELLER”

Your real estate commission is usually paid by the “seller.”  If you are representing the seller in the sale of their home; you are the Listing Agent.  Listing Agents are paid a listing fee.  The listing fee usually ranges between 5 to 7 percent of the purchase price.  The most common listing fee amount is 6 percent (6%).  The listing fee also covers the real estate commission for the Selling Agent (Agent that represents the buyer).  When you are out riding in a subdivision and you see FOR SALE signs in the front yard; those are considered the Listing Agents.  They are working specifically for the seller of that home; that is why they charge the seller a listing fee.

“THE BUYER”

There are times when a buyer will pay part of the real estate commission to their Real Estate Agent.  This is usually a small amount that they agree upon; to have that agent represent them while they purchase the home.  It may be a small amount around $500 to $1500.  Some agents charge for their time, gas and their work in “good faith” for that buyer.  For example, the agent and buyer will enter into an Exclusive Buyer Representation Agreement; which means that the buyer (agrees) to work with this agent “only” and pay the requested fee to the agent. If the buyer defaults on the agreement (starts working with another agent instead); that agent would still get compensated (that “agreed” to amount) by the buyer. 

 

What Are the Typical Real Estate Commission Percentages

Each transaction is paid out based on divided percentages.  A transaction usually pays 6% of the purchase price.  The listing fee of (6%) covers the real estate commissions for both Real Estate Agents (Listing Agent and Selling Agent).  This 6% fee also covers the marketing and advertising of the property (signage, lockbox, professional photos/videos, flyers, website exposure and costs associated with hosting open houses).

 

How is the 6 Percent Real Estate Commission Divided?

  • LISTING AGENT receives:  3.6% of the 6 percent (represents the seller)
  • SELLING AGENT receives:  2.4% of the 6 percent (represents the buyer)
  • DUAL AGENT receives:  6% of the 6 percent (represents both the seller and buyer)

 

The Listing Agent receives the larger percentage, because this agent is responsible for spending their money “out of pocket” up front to get the home sold.  All marketing efforts of that home come directly from the Listing Agent.  This money has to be spent up front before any money is made on the sale of the home.  Therefore, they are understandably compensated more (than the Selling Agent) to recoup some of their upfront expenses (as the Listing Agent).

The Selling Agent receives the lesser amount.  They do not spend any money out of pocket, because they represent the buyer.  There is not a house for the Selling Agent to market; only to sell.  However, Selling Agents must get paid, because they are bringing the (qualified) buyer to purchase the home.

The Dual Agent receives the 6 percent, because they represent both the seller and the buyer in the transaction.

 

How Your Real Estate Commission Is Split with Your Broker

Once your transaction closes, the title company (Escrow Agent or Attorney) will mail the real estate commission check to your company’s Broker.  That real estate commission check will then be split between you and your Broker and/or your company.  Unfortunately, you don’t get to keep the full 3.6% or 2.4% (or, even the 6% if you represented both).  Before you join a company, you will discuss commission splits.  This conversation is extremely important, because you need to know how much of your real estate commission you get to keep after the splits.

All companies are different with their real estate commission splits.  However, it is safe to expect that most company splits range from 30% to 50% of the real estate commission you earn.

 

Most Common Real Estate Commission Splits:

70/30 split:  You keep 70 percent of the real estate commission and the Broker/Company keeps 30 percent

60/40 split:  You keep 60 percent of the real estate commission and the Broker/Company keeps 40 percent

50/50 split:  You keep 50 percent of the real estate commission and the Broker/Company keeps 50 percent

 

PAY CLOSE ATTENTION…

When you are interviewing different companies, be sure to ask about the “real estate commission” splits.  This is extremely important, because it affects your bottom line.  This commission split amount is taken out of your pay each time you earn a real estate commission check. 

You will have to weigh out the benefits that are offered by the company that you join.  Some of the larger, brand name companies will automatically have splits starting at 30% to 40%, but many of these larger companies offer more training and better technology.  Smaller companies may have lesser splits, but offer less training and technology.

 

Exceptional Training is More Important than Real Estate Commission Splits

Brand new agents need to focus on a company that offers exceptional training.  In the beginning, your training is more important than the real estate commission split amounts.  You can justify a 70/30 commission split or 60/40 split in exchange for exceptional training and top technology that will help you to brand yourself as a new agent.

I’ve seen agents go for the lowest split, but they are not aware of the trade off in education.  They choose companies that offer a lower split, but they don’t offer good training or technology to help that agent grow and thrive in the industry.  Eventually, those same agents have to join a company that offers better training (and, even a higher real estate commission split).  Your initial training is critical to your success.  Once you feel properly trained and know how to run your business efficiently and effectively; you may want to join a smaller company with a lesser real estate commission split. 

 

Real Estate Commission Examples

Commission Split for the Listing Agent (You represent the Seller):

Real Estate Commission Split Agreement with Your Company: 60/40

Sales Price of the Home: $150,000

Listing Fee is: 6% of the purchase price = $9,000 ($150,000 x 6%)

Listing Agent Percentage is: 3.6% (of the 6% listing fee) – representing the seller

Selling Agent Percentage is: 2.4% (of the 6% listing fee) – representing the buyer

Your real estate commission check amount on the listing side (Before you split with Broker):  $5,400 ($150,000 x 3.6%)

Listing Agent (You) Receives to Take Home (After you split with Broker):  $3,240 ($5,400 x 60% commission split)

Your Real Estate Company Receives:  $2,160 ($5,400 x 40% commission split)

 


Commission Split for the Selling Agent (You represent the Buyer):

Real Estate Commission Split Agreement with Your Company:  60/40

Sales Price of the Home:  $150,000

Listing Fee is:  6% of the purchase price = $9,000 ($150,000 x 6%)

Listing Agent Percentage is:  3.6% (of the 6% listing fee) – representing the seller

Selling Agent Percentage is:  2.4% (of the 6% listing fee) – representing the buyer

Your real estate commission check amount on the selling side (Before you split with Broker):  $3,600 ($150,000 x 2.4%)

Selling Agent (You) Receives to Take Home (After you split with Broker):  $2,160 ($3,600 x 60% commission split)

Your Real Estate Company Receives:  $1,440 ($3,600 x 40% commission split)

Be Brave!

In this empowering (and free) audio training you’ll be inspired to overcome your intimidation and fear, plus get rid of any doubt hindering you from becoming a Real Estate Agent!