Commission splits are important for real estate agents because they determine how much of your commission you get to keep.
But there’s a lot of confusion around commission splits in today’s market because of a 2024 shake-up in the way real estate commissions work.
Here's everything you need to know about commission splits and how they affect your earnings post-2024.
How Traditional Real Estate Commission Splits Work
Traditionally, real estate commissions were split between the seller’s brokerage and the buyer’s brokerage (typically 50/50). Then each brokerage would split their share of the commission with the agents who represented the client. This second split was based on the agreement between the brokerage and the sales agent.
For example, let’s assume a home sold for $1,000,000 with a 6% commission, negotiated between the seller and the listing agent. Let’s also assume the listing agent has a 60/40 split with their brokerage, and the more established buyer’s agent has a 70/30 split with their brokerage. In this case:
The total commission would be $60,000 ($1,000,000 x .06).
The seller’s side and the buyer’s side would each get $30,000 ($60,000 x .5).
The seller’s agent would get $18,000 ($30,000 x .6), while their brokerage would retain $12,000 ($30,000 x .4).
The buyer’s agent would get $21,000 ($30,000 x .7), while their brokerage would retain $9,000 ($30,000 x .3).
The seller would have paid the full commission, typically from the proceeds of the home sale.
That’s how commission splits worked since the 1960s. Then everything changed in 2024.
How the NAR Settlement Changed the Way Commission Splits Work
In 2019, a group of home sellers brought legal action against The National Association of REALTORS (NAR), for this practice of splitting the commission. The suit alleged that this system artificially inflated real estate fees and drove property prices higher.
While maintaining innocence from any wrongdoing, NAR settled in 2024, agreeing to change the way commission splits work.
From August 17, 2024, forward, the following changes have been made to real estate agent commission split practices:
The sellers’ brokerage no longer splits commissions with the buyer’s brokerage. Sellers are only responsible for paying the listing brokerage, who then splits that commission with the listing agent.
Buyers must negotiate fees upfront with their buyer’s agent. Buyers must have an agreement in place with their buyer’s agent, outlining the compensation arrangement in detail, before touring homes.
Buyers are responsible for paying their brokerage. However, buyers can request a financial concession from the seller during negotiations to get money from their seller to cover this expense. The buyer’s brokerage still splits the compensation with the buyer’s agent.
Seller’s agents cannot list any commission split agreement on the MLS (multiple listing service). Even if the seller agrees upfront to help the buyer cover the cost of their buyer’s agent, this information cannot be posted on the MLS system, which is used to share active listings among local agents.
Brokerages are free to explore alternative compensation structures. Brokerages can still charge commissions as a percentage of the sales price, but they also have the option to charge flat fees, hourly rates, or any combination of payment models.
Real Estate Commission FAQs
Are Commission Rates Negotiable?
Yes. Commissions are, and always have been, negotiable.
What is the Average Real Estate Commission Rate?
Sellers traditionally paid 5-6% in most markets before the NAR settlement. Post-settlement, we will likely see buyers and sellers each paying 2-3% in most markets.
Who Determines the Commission Split Between Agents and Brokerage?
Commission splits between brokerages and agents are negotiated between the parties. Typically, you can negotiate a higher commission split as you gain experience and close more deals.
As a real estate agent choosing a brokerage to work under, it's important to consider the commission split offered along with other factors such as the level of mentorship, leads provided, education, and all-around level of support you'll receive.
How Much Do Real Estate Agents Make from Commissions?
The average American real estate agent earns around $54,300 per year, although this figure skews low because of the number of agents who choose to work part-time. Agents in the 90th percentile average around $120,000 per year.
How Can I Make Higher Commissions in Real Estate?
To earn higher commissions, you can:
Negotiate a higher rate with your brokerage.
Focus on luxury properties with higher price points.
Work in high-value markets where homes sell for more.
Invest more time in generating new client leads.
Build your skills to make yourself more valuable.
Expand your services so you can charge more.
Start Earning Your Own Real Estate Commission Checks!
Real estate is a flexible, fulfilling career path with high-income potential. To join the industry and start earning commission checks of your own, you just need a real estate license. And you might be surprised at how quickly and easily you can earn your license!
Rather than completing a college degree program, you just need to complete a state-required real estate course. In most states, you can complete your course online at your own pace.
Ready to start your real estate career? Enroll in your online real estate courses today!
Updated 12/20/24