How Is Real Estate Commission Distributed?

When you buy a home, you typically pay a real estate commission to the broker who

helps you close the deal. This fee is typically equal to one month’s rent plus a

security deposit. Likewise, if you’re selling your home, the agent who brings in a

buyer will take a percentage of the sales price as their commission. The real estate

commission amount can be significant, especially in a hot market. In NYC, the

average home seller pays 5% to 6% in realtor commissions. But with flat fee MLS

listing services like Hauseit, and buyer rebates becoming legal in NYC, real estate

commission rates are on the decline.


How Is Real Estate Commission Distributed?

The exact terms of how real estate commissions are distributed will be outlined in

your listing agreement, which is the document that you sign as a home seller

agreeing to work with a real estate agent. But to give you a general idea, let’s say

the home sale has a total sales price of $500,000 and the listing agent’s commission

is 6% of that sales price (or $6,000.) The home seller would then split that

commission evenly with the buyer’s agent. So each agent would receive $30,000 in

commission, or half of the sales price ($500,000 sales price x 6% commission rate =

$12,000 per agent).


In addition to splitting real estate commissions with their clients, real estate agents

also have to split their fees with their sponsoring brokers. Depending on the

brokerage, this could be as high as a 20% cut of an agent’s total commissions.

Generally speaking, however, broker fees are not negotiable. The fact is that the

majority of home sellers and buyers simply go along with the commission rate that

has been agreed to by their respective agents.Also read


Can You Negotiate the Real Estate Commission?

While it’s not really fair to compare haggling real estate commissions with

negotiating the price of a car, it is important to understand that in many cases,

realtor commissions are negotiable. In fact, if you’re working with a good buyer’s

agent, it is quite possible that they can get the listing agent to drop their

commission rates significantly.


However, when a real estate commission is non-negotiable, it’s usually because the

seller has already factored it into their asking price, so there’s not much of a case for

reducing it. This is why it’s so critical for a home seller to find a great buyer’s agent

and negotiate effectively. If you don’t, it’s likely that you won’t sell your home for

what you want, or even at all.