What is a Real Estate Commission?
A real estate commission is the fee paid to real estate agents for their services in a property transaction. Commissions are typically calculated as a percentage of the sale price and are paid at closing from the seller's proceeds. The traditional commission has been 5-6% of the sale price, split between the listing agent and buyer's agent.
On a $300,000 home sale with a 6% total commission, $18,000 goes to the agents. This is typically split between the listing side and buying side (e.g., 3% each, or $9,000 per side). Each agent then splits their portion with their broker according to their commission agreement, which might be 70/30 or 80/20. So an agent on a 70/30 split keeps $6,300 from a $9,000 commission.
The 2024 NAR settlement and commission changes
The 2024 NAR settlement fundamentally changed how buyer's agent commissions work. Previously, listing agents routinely offered compensation to buyer's agents through the MLS. After the settlement, this practice was eliminated. Buyers now negotiate their agent's compensation directly, often through a written buyer representation agreement signed before touring properties.
This change has led to more commission variability. Some buyer's agents accept flat fees or reduced percentages. Some sellers still offer buyer's agent compensation as an incentive. The market is still adjusting, and commission structures may continue evolving.
Commission alternatives
Flat-fee listings: Instead of a percentage, some brokerages charge a flat fee (typically $500-$5,000) to list a property on the MLS. The seller handles showings and negotiations themselves or pays separately for those services.
Discount brokerages: Firms like Redfin offer reduced listing commissions (1-1.5%) in exchange for a more technology-driven, less personalized service model.
For Sale By Owner (FSBO): Sellers who list without an agent avoid the listing commission entirely but may still need to compensate a buyer's agent and handle all marketing, negotiation, and transaction management themselves.
Commissions and investor deals
For investors, commissions are a significant transaction cost that affects deal profitability. A fix-and-flip investor selling through an agent at 6% commission on a $300,000 sale gives up $18,000 in profit. This is why many investors sell to other investors directly or through wholesale channels where traditional commissions do not apply. Assignment fees and wholesale fees replace the commission structure in off-market transactions.