Unlike other professionals who bill their clients at hourly rates, real estate professionals are paid at the end of a sales transaction in the form of a commission. If a real estate agent works with a buyer or a seller for weeks or months without a resulting transaction, they aren’t paid for their time.
Commissions are negotiable between real estate agents and their clients. So how much does a real estate agent make? In many cases, it will depend on the closing price of the home, with the commission amounting to a percentage of that price.
A recent settlement by the National Association of Realtors® (NAR) taking effect on Aug. 17 has also led to changes with commissions. These changes address how commissions are disclosed and negotiated, with the goal of increasing transparency to both homebuyers and home sellers.
In the past, the home seller generally paid the real estate commission, which was then split between the seller’s listing agent and the buyer’s agent.
But once the NAR settlement takes effect on Aug. 17, homebuyers will be responsible for paying their own agent.
That said, sellers will still have the option of compensating the buyer’s agent—and may want to consider doing so as a way to make their listing more attractive to homebuyers who may not have a lot of extra cash on hand to pay their own agent.
The exact percentage of the real estate agent’s payment or commission should be spelled out in the agent’s contract. This ensures that the agent gets paid if the property sells.
Listing agents and their brokers spend time and money marketing a home, advertising, and preparing the home for sale. In many cases, the commission covers those services.
Meanwhile, buyer’s agents typically have a contract with their clients so that they are paid when the buyer completes a purchase.
Whether you’re a buyer or a seller, the professional support of a real estate agent who represents your interests should be worth every dollar of the commission.
To learn more, check out our Guide to Real Estate Commissions, which covers everything homebuyers and sellers need to know.
Michele Lerner writes about real estate, personal finance, and business news. She is the author of two books about home buying.
