How Real Estate Commission Works

How much is real estate commission?

Real estate commissions can be negotiated, and the exact terms of an agent’s commission vary from sale to sale, and can depend on the region and which firm they work for.

Who pays the commission?

Real estate commissions have always been negotiable. Both buyers and sellers can structure their commission payment for that specific transaction. Sometimes sellers offer to pay buyers' agent's commission, but others don't. In the latter case, in addition to paying closing costs, if a buyer decided they want representation, they'll be responsible for paying their agent the agreed upon amount stated on their contract.

Here’s a breakdown of commission costs based on different home sale prices, using total commission rates of 5%, 3%, and 1.5%.

Can you negotiate Realtor® commission fees?

Absolutely! There are no laws or regulations in the U.S. dictating commission rates, so agents may be willing to negotiate lower rates depending on the type of transaction, the required services, and the relationship. Some agents will also lower their commission fees if they are representing both the buyer and the seller in a home sale (also known as dual agency; see below).

Keep in mind that a lower commission is not necessarily the best option. Part of the agent’s fee covers the marketing budget and other business expenses for the home sale. A smaller budget could mean your agent can’t maximize marketing your home. So while it’s important to consider an agent’s fee, it’s also important to consider the value you will be receiving.

Redfin offers no-hassle pricing. We show you how much you will pay—and how much you will save—in every home sale. Talk to a Redfin Agent to learn the exact amount you can save.

What does the commission cover?

The average real estate agent commission covers a wide range of services an agent provides during a home sale. These services can include: working with the seller to set a realistic price for the home, marketing it through a variety of online and offline channels, professionally presenting the home to potential buyers, negotiating the transaction details, being present during inspections and appraisals, and ultimately closing the sale.

Do agents split the commission?

As mentioned earlier, one arrangement is to split the commission evenly between the buyer’s agent and the listing agent, though this can vary based on several factors and the terms of the contract. For example, if a home sells for $250,000 with a 6% commission, and the parties have agreed to split the commission equally between the agents, the total commission of $15,000 would be split, with each agent receiving $7,500.

It’s important to also note that after the initial split, the commission may then be divided between the broker and the agent. So, the actual agent may only get 1.5% of a 6% commission.

How does commission work for buyers?

If a buyer decides they want representation, they will be responsible for paying their agent the agreed upon amount specified in their contract. This fee can vary depending on the specific terms negotiated between the buyer and their agent, as well as regional practices and the policies of the real estate firm the agent is associated with. It’s crucial for buyers to discuss and understand these terms upfront to avoid any surprises.

Do you have to pay commission if you don’t buy a home?

As a buyer, it'll depend on your contract with your agent whether you'll be responsible for paying closing costs. But keep in mind that agents are paid at the end of the process, so if you tour homes with a real estate agent and don't end up buying, the agent won't be paid for their time.

If you've signed a contract known as a buyer’s agency agreement, it may be difficult to break up with your agent later if you decide you don’t like them and want to work with someone else. Make sure to ask questions before signing a contract.

Is commission included in closing costs?

Technically, an agent’s commission is not included in a home’s closing costs. Closing costs are an assortment of fees, separate from agent commissions, that must be paid at closing. Closing costs typically include things like taxes, title insurance, appraisal, lender fees, and other services carried out during closing.

Closing cost amounts vary depending on the buyer's loan program, but they usually total 2%–5% of the home's purchase price.

Do you have to pay commission if your home doesn’t sell?

Short answer: Probably not. Real estate agents are paid when you sell your home, so if your home doesn’t sell, you shouldn’t owe them a commission.

Long answer: Read the fine print. Generally, your contract with your agent is bound to a certain time period. Unless your contract says otherwise, you are typically not required to pay your selling agent if the contract expires and your home doesn’t sell. However, there may be some exceptions, such as:

• Your agent found the buyer: Some contracts state that you still owe your agent commission after the contract period ends if your buyer was a prospect during the term of the agent’s contract.
  
  
• You back out of the sale: After an offer is accepted, you are responsible for paying commission to both real estate agents immediately. If you decide to back out of the sale last minute, you still have to pay both real estate agents their commission. If the buyer backs out, you may still be responsible for paying the commission — but can potentially sue the buyer for breach of contract.

What is dual agency?

Dual agency is when a real estate agent represents the buyer and a seller. Dual agency is only legal if full disclosure is given to both parties. It is completely illegal, however, in several states.

Bottom line

Read all contracts carefully. To save on commission when you sell, or get money back when you buy, find a Redfin Agent in your area. We're in more than 80 markets, including Denver, Austin, Raleigh, and Fort Lauderdale.