A real estate commission is the fee paid to the brokers and agents who handle a property sale, calculated almost always as a percentage of the home’s final selling price. The national average currently runs around 5.5%, and the seller traditionally pays the full amount out of the sale proceeds at closing. Since the National Association of Realtors settlement took effect in August 2024, buyers now negotiate their own agent’s fee upfront through a written agreement, which has begun to pull the total average downward.
How the Fee Is Calculated
The standard approach ties the commission to the gross sale price, meaning the full contract price before any deductions. On a $400,000 home with a 5.5% total commission, that comes to $22,000. Because the fee scales with price, agents have a built-in incentive to close at the highest possible number, and sellers of expensive homes often negotiate a lower percentage since the dollar amount is already substantial.
Flat-fee arrangements are an alternative where you pay a set dollar amount regardless of the sale price. These are more common with limited-service brokerages that handle specific tasks like listing your home on the MLS without providing full representation. Tiered structures also exist. A broker might charge 5% on the first $500,000 and 3% on anything above that, which blends the effective rate on higher-value homes.
The single most important thing to know about commission rates is that they are fully negotiable. No law, regulation, or industry rule sets a standard rate. The NAR settlement requires that all listing and buyer agreements include a conspicuous disclosure stating that commissions are not set by law and are fully negotiable.1National Association of REALTORS. NAR Settlement FAQs If an agent tells you their rate is “the standard” or “what everyone charges,” treat that as a flag. Every commission is a private negotiation between you and your broker.
Who Actually Pays
Traditionally, the seller pays the full commission out of the sale proceeds. At closing, the settlement agent deducts the agreed-upon fee from the seller’s funds and sends it to the listing brokerage, which then distributes the buyer’s agent share. Because the commission is embedded in the sale price, buyers effectively finance it through their mortgage without writing a separate check.
The 2024 settlement didn’t outlaw this arrangement, and in practice sellers still pay buyer agent compensation in most transactions. But the mechanism has shifted. A seller who wants to attract buyer’s agents can offer a concession that the buyer uses to cover their agent’s fee. The concession cannot be formally conditioned on the buyer using it for agent compensation.2National Association of REALTORS. Compensation, Commission and Concessions
In some transactions, particularly with for-sale-by-owner properties or sellers who decline to offer any compensation, buyers pay their agent directly. This can come from cash reserves, or it can be structured as part of the purchase negotiation by asking the seller to increase the price and credit the difference. If your buyer agreement commits you to a 2.5% fee and the seller offers nothing, you owe that fee out of pocket. This is where the written buyer agreement really matters: you know your exposure before you start looking at homes.
Commission Rebates
Some buyer’s agents rebate a portion of their commission back to the buyer, either as a check after closing or as a credit toward closing costs. A rebate of 0.5% to 1% on a $400,000 home means $2,000 to $4,000 back in your pocket. Rebates are legal in most states, though roughly 10 states prohibit them. The IRS treats a commission rebate as a reduction in your purchase price rather than taxable income, so you won’t owe taxes on the rebate itself.3Internal Revenue Service. Private Letter Ruling 200721013 Your lender does need to approve the rebate, and it must be disclosed on the closing documents.
What the 2024 NAR Settlement Changed
Two changes matter most to consumers. First, MLS listings can no longer include offers of compensation to buyer’s agents. Before the settlement, a seller’s agent would list a home on the MLS with a built-in commission split, and buyer’s agents could filter searches by commission amount, steering clients toward higher-paying listings. That practice is now prohibited. Sellers can still offer to compensate a buyer’s agent, but those offers must happen outside the MLS through direct communication.2National Association of REALTORS. Compensation, Commission and Concessions
Second, any agent working with a buyer must now sign a written buyer representation agreement before touring homes together. The agreement must spell out the exact compensation amount or rate the agent will receive, and the figure cannot be open-ended or contingent on what the seller offers.4National Association of REALTORS. Written Buyer Agreements 101 Buyers now negotiate their agent’s fee upfront rather than having it silently bundled into the seller’s costs.
How the Money Splits
The total commission gets divided in stages. The first split happens between the two brokerages involved in the transaction. Historically, the listing brokerage and the buyer’s brokerage each took half, so a 6% total commission became 3% per side. Post-settlement, this split is no longer standardized through MLS offers, and the two sides may agree to different amounts. The listing agent’s share is governed by the listing agreement, and the buyer’s agent share is governed by the buyer representation agreement and any seller concession.
The second split happens inside each brokerage. Licensed agents work under a supervising broker, and the broker takes a cut of every deal to cover office expenses, insurance, technology, and compliance. A new agent might keep only 50% of their brokerage’s share, while a top producer could keep 80% to 90%. On a $12,000 brokerage share, an agent on a 70/30 split takes home $8,400 and the brokerage retains $3,600. Some brokerages use a graduated model where the split improves as the agent hits annual production targets.
Dual Agency
When a single agent or brokerage represents both the buyer and seller in the same transaction, the entire commission stays under one roof instead of being split with an outside firm. Sellers in dual agency situations are in a strong position to negotiate a reduced rate, since the agent isn’t sharing the fee and even a lower percentage results in a larger personal payout. Dual agency is legal in most states but a handful prohibit it outright. If your agent suggests representing both sides, ask directly whether the total commission will decrease.
The Agreements That Govern the Fee
Listing Agreements
The listing agreement is the contract between a seller and their brokerage. It specifies the commission rate or flat fee, the duration of the listing period, and the conditions under which the commission is earned, usually the closing of a sale to a ready and willing buyer. Without a written listing agreement, a broker generally cannot enforce a claim to compensation. Pay close attention to the expiration date, the scope of marketing the broker will provide, and any early termination provisions.
Buyer Representation Agreements
Under the settlement, buyer agreements must meet several specific requirements. The compensation amount must be objectively ascertainable, meaning a specific percentage or dollar figure, not a vague promise to match whatever the seller offers. The agreement must include a conspicuous disclosure that commissions are negotiable and not set by law. And the agent’s total compensation from all sources cannot exceed the amount stated in the agreement.4National Association of REALTORS. Written Buyer Agreements 101 You and your agent can negotiate the duration of the agreement, including whether it automatically extends through closing once a purchase contract is signed.5National Association of REALTORS. Consumer Guide to Written Buyer Agreements
Protection Periods
Most listing agreements include a protection period, sometimes called a holdover or tail clause, that extends the broker’s right to a commission after the agreement expires. If the broker introduced a buyer to your property during the listing period and that buyer purchases the home within the protection window, the broker can claim the commission even though the listing has ended. Protection periods typically run 30 to 90 days after expiration. If you relist with a different brokerage during that window, the original broker’s claim is usually limited to any difference between the old and new commission rates.
Tax Treatment
For Sellers
Real estate commissions are treated as a selling expense that reduces your taxable gain. The IRS formula subtracts selling expenses, including agent commissions, from the sale price to arrive at the “amount realized.” On a $500,000 sale with a 5.5% commission ($27,500), your amount realized drops to $472,500 before any other adjustments. If you’ve owned and lived in the home for at least two of the last five years, you can then exclude up to $250,000 of gain ($500,000 for married couples filing jointly) from federal income tax.6Internal Revenue Service. Publication 523, Selling Your Home The commission deduction applies before the exclusion, so for most homeowners the commission never generates any tax liability at all.
For Buyers
If you pay a commission when purchasing a home, whether directly to your agent or as part of the closing costs, that amount gets added to your cost basis in the property. A higher basis reduces your taxable gain when you eventually sell.7Internal Revenue Service. Publication 551, Basis of Assets If you buy for $400,000 and pay $6,000 in buyer agent commission, your basis starts at $406,000. Every dollar of that higher basis reduces your capital gain dollar-for-dollar down the road.
Additional Fees to Watch For
Many brokerages charge an administrative or transaction fee on top of the commission, typically ranging from a few hundred to nearly $2,000. These fees cover document management, compliance review, and other back-office costs. Unlike the commission itself, they’re often flat amounts that don’t scale with the sale price. They’re negotiable, and some agents will absorb or reduce them if you ask. Review the listing or buyer agreement carefully for any mention of administrative fees, technology fees, or transaction coordination charges so nothing surprises you at the closing table.