How Much Commission Does a Realtor Make? (2024 Updated!)

Woman,Hand,Money,And,Piggy,Bank,With,House,Model,OnMany of us have heard that real estate is a very lucrative career choice. But exactly how much commission do realtors make? This article will review the payment process so you understand how much you can stand to take home as a real estate agent.

What is a Real Estate Commission?

Homes sell for hundreds of thousands and even millions of dollars. Some people may think that realtors take home a healthy commission on all this money. But that’s far from the reality.

The truth is, realtors must split the money that comes in from the sales they make with the broker they work for and the other agent involved in the deal. And that’s out of a 4-6% commission.

So let’s say the agent successfully sells a home worth $100,000 and earns 6% commission. That will equal $6,000. That $6,000 will have to be split between the seller’s agent and the buyer’s agent so each will walk away with $3,000 each.

But that’s not all.

Each agent will also have to split the money with their brokerage.

Different brokerages charge different commission rates, but most will do a 60/40 split with the agent getting 60% and the brokerage getting 40%. At that rate, the agent will need to give the brokerage $1,200 and take home $1,800.

How Can You Increase Your Commission as a Realtor?

calculating moneyWhen you think of how little agents make off a hefty sale, it can be disappointing. But there are things agents can do to get a bigger commission. Here are some suggestions:

  • Hit Your Caps: Many real estate brokerages have caps on the commission they charge agents. So, if agents bring in a certain amount of money for the year, the brokerage will let them keep their full commission for the rest of the year. If you sell aggressively, you will hit your caps and make more money.
  • Be the Agent for Both the Buyer and Seller: If you are the agent for both the buyer and seller, you won’t have to split the commission with the other agent. In this case, you will need to bring in a transaction facilitator to ensure both parties are treated impartially. However, it is a legal option.
  • Negotiate with Your Brokerage for a Better Rate: Most brokerages do a 60/40 split with realtors. But this isn’t the case across the board. Some brokerages take as little as 10%. Some will allow you to keep a bigger cut after you prove yourself as a high-performing broker. The point is that you can always negotiate with your broker for a higher commission cut. If they refuse to accommodate you, you can go to another broker.
  • Sell More Houses: The more you sell, the more money you will make. If you can’t earn more on individual sales, you can sell more to bring in more income. This will also help you reach your commission caps.
  • Get Into Bigger Markets: You may consider selling luxury real estate or larger properties that are worth more money. These properties will be higher priced and bring in more of a commission.
  • Provide Additional Services: Offering additional services won’t help you bring in a higher commission, but it will help you bring in more money overall. You can offer services like home staging in your package to collect more income. You may also take courses to become certified for home inspections and appraisals.
  • Negotiate with the Seller/Buyer for a Higher Commission: There are no hard and fast rules stating that you have to take a 4-6% commission. You can always negotiate with the buyer or seller for a higher commission. However, 4-6% is pretty much the industry standard. So, if you ask for more money, you may just price yourself out of a job.

When and How Does the Realtor Collect Commission?

Business,Team,Working,On,Negotiation,To,Money,Return,On,InvestmentIn addition to getting a small cut of the commission of a home sale, realtors must also wait a while before they collect their commission. They will only be paid after a sale closes. Closing will typically take 30-45 days although it may take longer depending on the complexity of the sale and how efficient the mortgage lender is.

You will get paid sooner if it’s a cash sale, but cash sales are rare.

Here’s how the process works:

After an offer is accepted, the buyer will put down earnest money which serves as a deposit on the home. The money lets the seller know the buyer is serious.

Next, the home is inspected and appraised. If all goes well, the home will close within 4-6 weeks. The buyer will remit the down payment at closing less the earnest money. Once the down payment is made, commissions are dispersed to the agents.

However, if something happens while the money is being held in escrow, the deal may not go through. Depending on the circumstances, the buyer may or may not get their escrow money back. But either way, if the deal is not successful, the realtor will not see a penny.

FAQs on How Much Commission Does a Realtor Make

Financial,Concept.,Make,Money,On,The,Internet.,Businesswoman,Works,AtWho Pays the Commission on and FSBO Sale?

With a For Sale by Owner (FSBO) property, the owner will sell the property directly without the help of an agent. So, who pays the buyer’s agent commission?

Sometimes you can negotiate to get the seller to pay the fee, but this will be difficult to do as it’s likely they are doing FSBO to avoid agent fees completely. If this is the case, you will have to ask your client, the buyer, to pay your commission outright.

How Much Does a Realtor Make?

It’s rare for a real estate agent to make a salary. Therefore, if you look on job boards to find out what a real estate agent makes, it’s most likely to say $0.

However, agents can make a good amount in commissions. The average agent or realtor will make around $51,220 in commissions each year.

How Much Do Commercial Real Estate Agents Make in Commissions?

counting moneyCommercial properties are typically a lot more expensive than residential properties. So, you may think that a commercial agent will make a lot more than a residential agent. However, this isn’t always the case.

If the property is $1 million or less, the agent will collect a commission of 4-8%. However, if the property is a lot more than a million, like say several million, the commission will go down to between 1-3%. On rare occasions, the agent may work out a flat fee with the client.

Can Realtors Make More Than Commissions?

While real estate agents rarely get a salary, they can get additional income on top of their commission for the homes they sell. For example, they may include services like photography, staging, etc. with their offerings to increase their income. They may also draw up contracts like listing contracts and rental contracts on rental properties to boost their earnings.

Does an Experienced Agent Make More Than an Agent That’s Just Starting Out?

If an agent is very well-known, they may negotiate for a higher commission, but in most cases, commissions will stay in the 4-6% range no matter how reputable the agent may be. However, more experienced agents will be able to earn more because their skills and reputation allow them to attract more clients and get through the buying and selling process more efficiently.

What Does Commission Cover?

coins stackedAs an agent, you may wonder, what exactly am I getting a commission for? Commission covers a wide range of duties including setting a realistic price for the home, marketing it through various channels, getting the home ready for open houses, hosting open houses, negotiating transaction details, being present during inspections and appraisals, and closing the sale.

Will I Get Paid if the Home Doesn’t Sell?

Generally, the answer to this question is no, you will not be paid if you can’t get the home to sell. However, you may include wording in your contract that will bring in income under certain circumstances as follows:

  • If you Found the Buyer: Your contract may state that you can earn a commission after the contract period ends if the seller goes with a buyer that was a prospect when your contract was active.
  • If Your Client Backs Out of the Sale: After an offer is accepted, the seller is responsible for paying both clients. If they back out of the sale last minute, they may still have to pay both agents. The same goes if the buyer backs out, but in these cases, the seller may be able to sue the buyer for a breach of contract in which case they will be made to pay the agents.

Is Commission Included in Closing Costs?

No, technically commission is not included in closing costs. Closing costs include things like taxes, title insurance, appraisal, lender fees, and other services carried out during the closing process.

Should I Accept a Lower Commission Fee?

Sellers may try to negotiate with you on a commission fee so they can keep more of their earnings. Whether you decide to play ball will depend on how much you need the work, what the demand is like it the area, and how much you stand to make.  The seller can also sweeten the deal by taking the following steps:

  • Making the home easy to sell by repainting, installing new carpets, doing some landscaping, etc.
  • Offering to hire you as their buying agent when they look for a new home
  • Letting you represent both the seller and the buyer in the deal

Are Realtors Ever Paid with a Salary?

The,Real,Estate,Agent,Hand,Holding,Money,And,Explains,TheReal estate agents are sometimes paid with a salary. Brokerages like Redfin pay their agents a modest salary which is supplemented by commissions or bonuses for positive customer reviews. Some real estate developers may hire agents to sell their properties for a salary plus commission.

Salaries are beneficial as they allow the realtor to collect a steady income. However, they are also limiting. When you earn a commission, the sky’s the limit, but when you earn a salary, you are limited by the company’s budget.

Do Realtors Need to Pay Taxes on Commissions?

Yes, real estate agents need to pay taxes on commissions. The amount you earn will be listed on your W-2 in Box 1: Wages, tips, and other compensation.

How much you pay in taxes will depend on your employment status. Most agents are considered independent contractors as their income depends more on the sales they make than the hours they work.

Independent contractors will typically pay a 15.3% self-employment income tax which covers their Social Security and Medicare as well as the Social Security and Medicare that would otherwise be paid by an employer.

However, if the agent receives a salary, they will not be seen as an independent contractor and they will be able to pay less in taxes.

How Do I Get Paid for Finding a Rental Property?

There are various arrangements that can be worked out when an agent successfully rents a property as follows:

  • The agent’s commission may get paid by the landlord. In these cases, the agent will most commonly collect one month’s rent, or a portion of one month’s rent for getting the unit rented. They may also charge a percentage of the lease. So, if the lease for one year is $25,000, and the agent charges 10%, they will get a $2500 commission.
  • The agent may also get paid the first month’s rent and security deposit which will come directly from the tenant. The agent will take their split and give the rest to the landlord.

The amount you make for helping someone buy or sell a home seems relatively small in the grand scheme of things. But if you are active in the market, you can bring in considerable income. Now that you know how commission works, you can figure out ways to maximize the money you are making. We wish you the best of luck in your endeavors.

Authored by Chris Heller

About the Author

Chris Heller brings 27 years of experience in real estate. Chris serves on the Agent Advice Editorial Board and is the Chief Real Estate Officer at OJO Labs. Chris brings deep expertise having held influential industry positions including CEO of mellohome and former CEO of Keller Williams Realty International.

Last Updated: 12/29/2023