Commission & Compensation
How Do Real Estate Agents Get Paid?
Real estate agents earn commissions — but who pays, how much, and how it's split has changed significantly after the 2024 NAR settlement. Here's what the exam tests.
Commission Basics
Real estate agents are typically paid on commission — a percentage of the property's sale price, earned only when a transaction closes. If no sale occurs, no commission is paid.
Commissions are negotiable. There is no fixed commission rate. The commission is established in the listing agreement between the seller and the listing broker.
How Commission Flows
Listing Agreement
The seller signs a listing agreement specifying the total commission (e.g., 5%). This goes to the listing broker, not the agent directly.
Commission Split
The listing broker historically shared the commission with the buyer's broker. After the 2024 NAR settlement, buyer's agent compensation is negotiated separately.
Agent Split
New agents typically start at 50/50 splits with their broker. Experienced agents may earn 70%–90%+ of their side of the commission.
After NAR Settlement
Starting August 2024, buyer's agent compensation can no longer be mandated through MLS rules. Buyer agents must have a signed Buyer Representation Agreement specifying their compensation before showing homes.
Commission Calculation Practice
Question 1
A home sells for $450,000 at a 5% total commission. The commission is split 50/50 between listing and buyer's broker. Each agent earns 60% of their broker's share. How much does the listing agent earn?
Total commission: $450,000 × 5% = $22,500. Listing broker's share: $22,500 ÷ 2 = $11,250. Listing agent's share: $11,250 × 60% = $6,750.
Question 2
An agent earns $18,000 on a sale after a 50/50 split with their broker. What was the broker's total commission on this transaction?
If $18,000 is the agent's 50% share, the broker's total from the transaction was $18,000 ÷ 0.50 = $36,000.
Agent Compensation FAQ
Who actually pays the real estate commission?
Traditionally the seller pays both the listing and buyer's agent commissions from the sale proceeds. After the 2024 NAR settlement, buyers may negotiate and pay their agent's commission separately, though sellers can still offer to cover it as a concession.
What changed with the NAR settlement in 2024?
The NAR settlement (effective August 2024) prohibits MLS participants from requiring sellers to offer compensation to buyer's agents as a condition of MLS listing. Buyer's agents must now have a signed Buyer Representation Agreement before touring homes.
Do agents pay taxes on their commission?
Yes. Agents are typically independent contractors (receiving 1099 income) and pay self-employment tax in addition to federal and state income taxes.