Realtor Commission Explained in Plain English

For most home sellers, the real estate commission is the single largest cost of selling, larger than title insurance, transfer taxes or moving. Buyers have more reason than ever to understand it too, because the 2024 changes to industry practice put buyer agent pay front and center. Yet the basics are often misunderstood. This guide explains how realtor commissions work, what the usual range looks like, who pays, and how to negotiate.

The short version: there is no standard or legally required commission. Fees are set by agreement between you and the brokerage, they vary by market and by service level, and they are negotiable.

How a realtor commission works

A commission is a fee paid to a real estate brokerage, usually calculated as a percentage of the final sale price, for representing a client in a transaction. A few points that surprise people:

• It is paid to the brokerage, not directly to the agent. Licensed agents work under a supervising broker, and the brokerage then pays the agent their share under a separate "commission split" agreement.
• It is usually contingent on closing. In a typical arrangement, the agent is paid only if the sale actually closes. If the deal falls apart, the agent typically earns nothing for the time spent.
• It comes out at closing. The commission appears on the settlement statement or Closing Disclosure and is normally paid from the seller's proceeds or by the buyer, depending on the agreements in place.
• The agent does not keep it all. Out of their share, agents commonly pay brokerage fees, marketing, licensing, insurance, MLS and association dues, and their own taxes.

A worked example

The figures below are purely hypothetical, chosen to show the mechanics. Your own percentages may be higher or lower, and many agreements now separate the seller-side and buyer-side fees entirely.

Seeing the numbers this way helps explain why an agent's response to a fee request depends on their brokerage arrangement, and why a single percentage point can be worth several thousand dollars to you.

What is the average realtor commission?

People often ask what percentage of a house sale goes to the realtor. Historically, total commissions in many U.S. markets have tended to fall somewhere around 5% to 6% of the sale price when both the listing and the buyer side were covered, often split roughly in half between the two brokerages. That has never been a fixed rule. Actual fees vary by state, by city, by price point and by the level of service, and in recent years more arrangements have landed below that range, particularly on higher-priced homes and with discount or flat-fee brokerages.

State-by-state searches such as the average realtor commission in Florida, Texas, Ohio or Arizona are common, but no official body publishes a binding state rate, and published "averages" from private sources use different methods. The most reliable way to learn the going rate where you live is to ask several local agents for written quotes and compare them.

Who pays realtor fees, the buyer or the seller?

Traditionally, the seller paid the full commission out of sale proceeds, and the listing brokerage shared part of it with the buyer's brokerage. That is still a common outcome, but it is no longer automatic.

Since August 17, 2024, under the practice changes from the National Association of REALTORS settlement, offers of compensation to buyer brokers can no longer be published on the MLS, and buyers working with an MLS-participant agent generally must sign a written agreement before touring homes. That agreement must state the buyer agent's compensation in a clear amount or rate. In practice, the buyer agent fee can now be paid in several ways:

• By the seller, if the seller agrees to cover it, either in the listing terms or in response to the buyer's offer.
• By the buyer directly at closing.
• By a combination, for example a seller concession that the buyer applies toward their agent's fee.

Whether a buyer can finance that fee or apply seller concessions to it depends on the loan program and lender rules, so buyers should raise it with their lender early. Local customs also differ, which is why searches like who pays realtor fees in Massachusetts or North Carolina are common; the honest answer everywhere is "whoever agrees to in writing."

Do closing costs include realtor commission?

For sellers, the commission is usually listed among the seller's closing costs and deducted from the proceeds on the settlement statement. For buyers, any buyer-paid agent fee will also appear on the Closing Disclosure. The Consumer Financial Protection Bureau explains how to read the Loan Estimate and Closing Disclosure, and buyers should check that the agent fee shown matches their written agreement.

How to negotiate realtor commission

Yes, realtor fees can be negotiated. Agents are not required to accept a lower fee, and you are not required to accept the first number. A respectful, informed approach works best.

1. Get multiple quotes. Interview at least three agents and ask each for their fee and what it includes, in writing.
2. Negotiate the service, not just the rate. Ask what is included: professional photos, staging advice, video, open houses, transaction coordination. Compare value, not only percentages.
3. Use the property's strengths. A well-priced, move-in-ready home in a busy market may take less work to sell, which can justify a lower fee.
4. Propose a tiered structure. For example, a lower base percentage with a higher rate on any amount above a target price, which rewards the agent for a stronger result.
5. Bundle transactions. If you are selling and buying with the same agent, ask whether they will reduce the fee on one or both sides.
6. Clarify the buyer side separately. As a seller, decide whether and how much you are willing to offer toward a buyer's agent. As a buyer, negotiate your agent's fee in your buyer agreement before touring.
7. Get every term in the agreement. Verbal promises about fee reductions are easy to forget at closing.

Commission models compared

Realtor commission on rentals

Rental fees work differently. When an agent helps a landlord find a tenant, the fee is often a set amount tied to the rent, such as a portion of one month's rent or a full month's rent, though percentages of the annual lease are also used. Ongoing property management, if provided, is usually billed separately as a percentage of monthly rent. Who pays a rental broker fee depends on local law and custom. In some high-cost markets tenants historically paid it; New York City's FARE Act, which took effect in 2025, generally requires the party who hired the broker to pay. Yes, you can use a realtor to find a rental, but ask upfront who pays and how much.

Realtor commission on new construction

Builders frequently pay buyer agent fees on new homes because they budget for agent cooperation as part of their marketing. The amount is set by the builder and may differ from resale norms, and it is not guaranteed. Many builders also require that the buyer's agent be registered or present on the buyer's first visit to the sales office, otherwise they may decline to pay. If you plan to use an agent, bring them, or at least register them, from the start. Remember that the builder's on-site sales consultant represents the builder, not you.

Taxes and commissions

For sellers, the IRS generally treats real estate commissions as a selling expense that reduces the amount realized on the sale, which can lower any taxable gain. IRS Publication 523 explains how this works for a main home. Tax rules can be complicated, so confirm your situation with a tax professional.

Commission checklist before you sign

• The fee is stated as a clear percentage or dollar amount.
• You know whether the fee covers only your side or both sides.
• The agreement says when the fee is earned and what happens if the sale does not close.
• The length of the agreement and any protection period are acceptable to you.
• Any extra charges, such as administrative or transaction fees, are listed.
• Any promised discount, rebate or tiered rate is written into the agreement.
• You understand how the buyer agent fee, if any, will be handled.

This guide is general information, not legal, tax or financial advice. Rules differ by state; confirm details with a licensed professional or your state real estate commission.