How are Real Estate Agents Paid?

When a property is listed for sale with a licensed real estate agent, the seller signs a contract promising to pay the real estate brokerage a percentage of the final selling price.  This commission is often between 5 and 7 percent.  To gain exposure for the property, the seller’s agent will advertise the property on the Multiple Listing Service, or ‘MLS,’ which is a computerized database of available properties that is used by other real estate agents in searching for homes for their home-buyer clients.  Listings on the MLS are almost always shared on various brokerage and home-search websites through what’s known as an internet data exchange.

To attract the assistance of buyers’ agents, the listing agent will offer a portion of his or her commission, referred to as the ‘buyer’s cooperative compensation,’ to any other Realtor, (member of the realty association), who brings a buyer for the property.  The buyer’s cooperative commission percentage is stated on the agent version of the MLS report and typically ranges between 2.7 and 3 percent of the home’s final purchase price.

When the property is sold, the listing agent’s company retains as payment, the original commission minus the buyer’s side compensation, which is then paid out to the buyer’s agent’s company.  The seller’s agent and the buyer’s agent will each then receive a portion of the commission taken in by their respective brokerages.  It is not uncommon for a real estate brokerage to retain up to half of the earned commission, resulting in the agent receiving the other half as his or her total compensation.