For many years, selling a home followed a common pattern. When a seller sells their house, they usually pay a commission of around 5% to 6% of the sale price to their real estate agent. That commission was then shared between the seller’s agent and the buyer’s agent. Even though both agents were involved, the seller paid the full amount, and the buyer did not pay their agent directly.
However, this system changed in 2024 due to new rules introduced after a legal settlement between the U.S. Department of Justice together with the National Association of Realtors. These changes were made to bring more transparency and fairness to the real estate market, especially for buyers who are now learning how to calculate realtor commission more carefully before hiring an agent. Under the new rules, sellers are no longer allowed to pay the buyer’s agent. Instead, buyers must now negotiate and pay their own agents directly.
Over time, experts believe these changes may lower overall commission costs, saving money for both buyers and sellers. Below is a clear explanation of how real estate agents earn money and how the new rules affect everyone involved.
Key Points to Know
Real estate agents earn most of their income through commissions, which are usually a percentage of the home’s sale price.
Under the new rules, buyer’s agents cannot receive part of the seller’s agent commission.
Buyers must sign a written agreement with their agent before viewing any homes.
In the long run, experts believe real estate commissions could drop by up to 50% due to better competition and transparency.
Commission-Based Pay
Most real estate agents earn money through commissions. This means they get paid only when a property is sold, and their income depends on the sale price.
In 2024, the median annual income for real estate sales agents was approximately $56,320, while real estate brokers earned a median annual income of $72,280. Income can vary significantly based on experience, location, and the number of deals an agent closes.
Earlier, commissions for both the seller’s agent and the buyer’s agent were combined and paid by the seller. After the 2024 settlement, this practice is no longer allowed. Sellers can only pay their own agents, while buyers must handle their agents’ fees separately.
How Commissions Are Split
In most states, real estate agents must work under a licensed broker. The broker manages the business side of real estate and takes a share of the commission earned by the agent.
The way commissions are split depends on the agreement between the agent and the broker. Some brokers take a large percentage, while others allow agents to keep more, especially if the agent is experienced or brings in many clients. A skilled agent with strong connections and a good reputation can usually negotiate a better split.
Sometimes, an agent may also share their commission with another agent if they work together on a deal. This further reduces the final amount the agent takes home.
Why Commission Rates Vary
There is no standard commission rate in real estate, as the amount can change based on several factors, such as:
- The agent’s experience and negotiation skills
- The broker’s fee structure
- Market conditions
- Property value and location
- Supply and demand
In a seller’s market, where there are more buyers than homes, agents often have more power to charge higher commissions. In a buyer’s market, where there are more homes than buyers, agents may reduce their fees to stay competitive.
Competition also matters. In crowded markets, newer or lesser-known agents may lower their rates to attract clients. Property type and location can also influence how much commission is charged.
Other Ways Agents Get Paid
Although commissions are the most common payment method, some agents use alternative models.
Flat-Fee Services
Some agents charge a set fee rather than a percentage of the property price. This could be a single upfront payment or a menu-style system where clients pay separately for services like listing a home, showing properties, or handling paperwork.
Flat fees are transparent, but they must often be paid up front. In some cases, they may cost more than a commission, or they may offer fewer services, especially when compared to how traditional real estate agents are typically compensated through performance-based commission structures.
Hourly Rates and Salaries
In rare cases, agents charge by the hour. Some companies also hire agents as employees and pay them a salary. For example, Redfin pays its agents a base salary plus bonuses for completed sales.
Referral Fees
Agents may also earn money by referring clients to lenders, movers, or relocation services. If a referral leads to business, the agent may receive a fee.
The NAR Lawsuit and Why It Happened
In 2024, the National Association of Realtors agreed to pay $418 million and change its rules after a lawsuit claimed that commissions were being unfairly inflated. Homeowners argued that sellers were forced to pay high commissions and that buyers had little information or power to negotiate.
According to the DOJ, many real estate listing platforms hid commission details from buyers. This made it easier for buyer agents to guide clients toward properties that paid higher commissions, rather than focusing on what was best for the buyer. Because buyers were unaware of these fees, they could not negotiate lower rates.
New Rules from the Settlement
As part of the settlement, several major changes were introduced:
- Listing agents can no longer show commission offers on Multiple Listing Services (MLS).
- Buyers must sign a representation agreement before touring homes.
- Buyer agents are strictly forbidden from receiving any payment from the seller or the seller’s agent.
These rules are meant to make costs clearer and encourage honest negotiation.
Who Pays the Commission Now?
Under the new system:
- Sellers pay only their listing agents.
- Buyers pay their own agents directly.
Experts believe this change could reduce overall commission costs in the long run. Sellers may lower home prices slightly since they no longer need to cover buyer agent fees. However, buyers now face an extra cost, which could be difficult for first-time buyers who already struggle with down payments.
