Real estate agents are paid by commission, not salary, and the money comes from the seller's proceeds at closing

When you sell a house, you do not write a check to your real estate agent. Instead, the agent's payment is deducted from the sale price at closing — the final meeting where ownership transfers and money changes hands. The seller's net proceeds are reduced by the commission, which is typically split between the seller's agent and the buyer's agent. This structure means the agent has no income until a sale actually closes, and they receive nothing if the deal falls through.

The commission rate is not set by law or regulation. It is negotiated between you and your agent before you sign a listing agreement. Rates vary widely depending on your market, the property type, and local custom, but many agents in residential real estate work on a commission of 5 to 6 percent of the final sale price. In some markets or for certain property types, the rate may be lower or higher. You have the right to negotiate this percentage downward, and many sellers do.

Key Takeaways

  • Commission is deducted from the seller's proceeds at closing, not paid separately by the buyer or seller out of pocket.
  • The commission rate is negotiable and is written into your listing agreement before the agent begins marketing your home.
  • The seller's agent and buyer's agent typically split the commission, though the exact split is determined by the listing agreement and the buyer's agent's brokerage.
  • If a sale does not close, the agent receives no commission, which is why agents have financial incentive to complete the transaction.
  • The agent's brokerage takes a portion of the commission, and the individual agent receives the remainder after that split.

How the commission splits between agents and brokerages

The commission does not go directly to the individual agent. It goes first to the agent's brokerage — the company the agent works for — and then the brokerage splits it with the agent according to their employment agreement. A newer agent might receive 50 to 60 percent of the commission they bring in, while an experienced agent with a track record might receive 70 to 90 percent. The brokerage keeps the rest to cover office overhead, marketing, legal support, and other operating costs.

The listing agreement you sign specifies what percentage of the sale price will go to the buyer's agent. This is typically half of the total commission. For example, if you agree to a 6 percent total commission on a $400,000 sale, that is $24,000. The listing agreement might state that 3 percent goes to the buyer's agent ($12,000) and 3 percent goes to your agent's brokerage ($12,000). Your agent's brokerage then pays your individual agent their agreed-upon split of that $12,000.

The buyer's agent works for a different brokerage and receives their commission from their own brokerage, which receives it from the listing brokerage at closing. This system exists because the buyer typically does not pay the buyer's agent directly — the seller's proceeds fund both sides of the transaction.

What happens if the sale does not close

If the buyer backs out, financing falls through, or the sale is cancelled for any reason before closing, the agent receives no commission. This is true even if the agent spent weeks or months marketing the property, showing it to dozens of buyers, or negotiating offers. The agent's income depends entirely on the transaction reaching the closing table.

This is why agents have strong incentive to help you through inspections, appraisals, and financing hurdles. They also have incentive to price the home competitively and market it effectively — a home that does not sell generates zero income for the agent. However, it also means agents sometimes push for lower prices or faster sales to close deals quickly rather than hold out for better terms.

Negotiating commission before you list

Commission is one of the largest expenses in a home sale, so it is worth negotiating. Before you sign a listing agreement, discuss the rate with your agent. You can propose a lower percentage, a tiered rate (for example, 5 percent if the home sells in the first 30 days, 6 percent after), or a flat fee instead of a percentage. Some agents will negotiate; others will not. If an agent refuses to discuss commission at all, that is a signal to interview other agents.

Keep in mind that offering a lower commission to the buyer's agent can discourage buyer's agents from showing your home to their clients. If you reduce the buyer's agent commission below the market rate in your area, some agents may deprioritize your listing. This is an unofficial practice, but it happens. Discuss this risk with your agent before you make that choice.

You can also ask your agent to explain what services are included in the commission. Some agents include professional photography, staging information, and market analysis. Others charge separately for these services. Understanding what you are paying for helps you evaluate whether the rate is fair for your situation.

When you sell without an agent

If you sell your home without a real estate agent — called a for-sale-by-owner or FSBO sale — you do not pay agent commission at all. However, you are responsible for marketing the property, showing it to potential buyers, negotiating offers, and managing the legal and financial details of the transaction. Many sellers who attempt FSBO sales end up hiring an agent partway through because the work is more complex than expected.

If a buyer brings their own agent to a FSBO sale, you may still owe that agent a commission. This is negotiated directly with the buyer's agent, and you can refuse to pay it — but doing so may discourage that agent from showing your home to their clients. Many FSBO sellers end up offering a buyer's agent commission (typically 2.5 to 3 percent) to attract more potential buyers, which reduces the financial advantage of selling without an agent.

How commission affects your net proceeds

Commission is one of several costs deducted from your sale price before you receive your money. At closing, the title company or attorney prepares a settlement statement that lists all deductions: the real estate commission, property taxes, homeowners insurance prorations, title insurance, recording fees, and any other agreed-upon costs. Your net proceeds are what remains after all of these are subtracted from the sale price.

For example, if your home sells for $400,000 and you agreed to a 6 percent commission ($24,000), plus $3,000 in closing costs, your net proceeds would be approximately $373,000 before any remaining mortgage balance is paid off. If you still owe $250,000 on your mortgage, that amount is also deducted at closing, leaving you with roughly $123,000. Understanding these deductions ahead of time helps you set realistic expectations for how much money you will actually receive.

Frequently Asked Questions

Can I negotiate commission after I sign the listing agreement?

Technically yes, but it requires the agent's agreement. If you want to renegotiate, you would need to discuss it with your agent and potentially amend the listing agreement in writing. Most agents are reluctant to lower commission mid-listing, especially if they have already invested time and money in marketing. It is better to negotiate before you sign.

Who pays the buyer's agent if the buyer does not have an agent?

If a buyer purchases your home without representation, you still do not pay the buyer's agent commission because there is no buyer's agent. The commission you negotiated in your listing agreement is split between your agent's brokerage and your agent. You may choose to offer a buyer's agent commission to attract more potential buyers, but you are not obligated to.

Does the commission come out of my pocket or the sale price?

The commission is deducted from the sale price before you receive your proceeds. You do not write a separate check. If your home sells for $400,000 and commission is $24,000, the title company deducts that $24,000 and you receive $376,000 (before other closing costs and mortgage payoff).

What if my agent does not sell my home within a certain time?

If your home does not sell, your agent receives no commission regardless of how long they listed it. This is why the listing agreement includes an expiration date — typically three to six months. When that date arrives, the agreement ends and you are free to list with another agent or try selling on your own.

Can I pay commission in installments instead of at closing?

No. Commission is always paid at closing from the sale proceeds. The agent and their brokerage expect full payment on the day the transaction closes. There is no standard option to pay commission over time.