Understanding How Realtors And Real Estate Agents Are Compensated

When you’re buying or selling property, understanding how are realtors paid can help you make informed decisions about negotiations and service expectations. The compensation structure for real estate professionals is more nuanced than it might initially appear, involving multiple payment streams and arrangements.

The Foundation: Commission-Based Income

The primary way realtors and real estate agents earn money is through commissions on property sales. This fee structure represents a percentage of the final sale price and gets split between the seller’s representative and the buyer’s representative. Rather than receiving a salary from their brokerage, most professionals who work as independent contractors depend entirely on these transaction-based earnings.

When a property sale closes, the full commission flows through the real estate brokerage first. The brokerage then distributes a predetermined percentage to the individual agents involved. This split varies considerably—experienced realtors with an established client base might receive a larger cut compared to newer professionals still building their reputation.

Commission Rates Explained

Most transactions fall within the 5% to 6% range of the final sales price. Each side of the transaction—buyer’s agent and seller’s agent—typically receives equal portions, meaning roughly 2.5% to 3% goes to each brokerage involved. Land sales operate differently, often commanding commissions between 10% to 20% due to the extended marketing efforts and expertise required.

The home seller ultimately bears this cost, usually building the commission amount into their asking price. This means buyers indirectly contribute to the commission through the higher purchase price they pay.

Can Commission Rates Be Negotiated?

Absolutely. However, realtors aren’t obligated to accept lower rates. Your negotiating power depends on local market conditions, the specific services being provided, and the agent’s experience level. In competitive markets or when working with highly experienced professionals, commission percentages become far less flexible.

Alternative Income: Referral Fees

Beyond standard commissions, realtors and real estate agents earn through referral arrangements. When one professional sends a client to another, the referring party receives a percentage of the commission earned on that transaction—typically around 25% of the final commission, though this figure remains negotiable.

When Do Referral Fees Come Into Play?

Several scenarios trigger referral fee arrangements. Newer professionals just entering the field often lack an established client base and may pay referral fees to gain business. Conflicts of interest—such as when an agent knows both buyer and seller personally—sometimes make referrals necessary. Additionally, when clients want to buy or sell in different geographic markets, or when agents lack capacity for new clients but still want to participate in earnings, referral fees provide the solution.

The actual fee amount depends on multiple factors: how much groundwork the referring agent has already completed, their ongoing involvement level, and direct negotiation between both parties.

Special Arrangement: Dual Agency

Dual agency occurs when a single realtor or agent—or two agents from the same brokerage—represents both the buyer and seller in one transaction. In these arrangements, the brokerage retains the full commission rather than splitting it with another firm.

This practice faces legal restrictions in several states including Alaska, Colorado, Florida, Kansas, Oklahoma, Texas, Vermont, and Wyoming, reflecting concerns about potential conflicts of interest.

Other Compensation Models

While commission-based work dominates the industry, some realtors and real estate agents operate under different arrangements. Certain brokerages employ agents as salaried staff, supplementing base pay with transaction bonuses. This hybrid model offers more income stability compared to pure commission work, though it typically involves lower overall earning potential for high-performing professionals.

The Bottom Line

How are realtors paid ultimately depends on their employment structure and the specific arrangements within their brokerage. Most build their income through a combination of commissions, referral fees, and occasional alternative compensation models. Understanding these payment mechanisms helps both clients and agents navigate transactions more effectively.