The broker’s commission is usually paid at closing, out of the seller’s proceeds, by the escrow officer or title company handling the settlement. Nobody writes a separate check. The closing agent subtracts the fee from what the seller would otherwise walk away with and sends payment directly to the brokerages involved, who then pay their individual agents. The total has historically run between 5% and 6% of the sale price, with the national average around 5.4% in 2025.
Where the Money Actually Comes From
The dollars that fund the commission arrive from the buyer’s side of the transaction, whether through mortgage proceeds, cash, or a combination. But the seller absorbs the economic cost, because the fee is deducted from the seller’s gross proceeds before any money is released.
Picture a $400,000 sale. The buyer’s loan and down payment fund the full purchase price into the closing. The seller’s existing mortgage gets paid off, property taxes are settled, the commission comes out, and whatever remains is the seller’s net. If a seller has $100,000 in equity going in, the commission is coming straight out of that equity. When the sale price is not high enough to cover the payoff, the commission, and other closing costs, the seller may have to bring cash to the table. A net sheet, usually prepared by the listing agent or title company before the home is listed, estimates all of this in advance.
How the Rate Gets Set
Commission terms are locked in by the listing agreement, the contract the seller signs when hiring a brokerage. That document spells out the percentage, the length of the listing, and the conditions that trigger or cancel the fee. Everything in it is negotiable. No law fixes the rate.
Most residential commissions are a percentage of the final verified sale price. At 5.5% on a $500,000 home, the commission is $27,500. Rates move with local market conditions, property type, and how hard brokerages are competing for listings. Recent quarters have shown buyer-agent commissions averaging around 2.4%, with the listing side making up the rest of the total.
Not every deal uses a percentage. Flat-fee arrangements charge a set dollar amount regardless of price; flat fees for buyer representation can run from roughly $5,000 to $10,000 or more depending on the market and the scope of service. Some agents work on reduced percentages of 1% to 1.5%. Hourly billing exists, mostly for buyers who want limited consulting rather than full representation. Whichever structure applies, it has to be written into the listing agreement or buyer representation agreement before the agent starts work.
What the Closing Agent Does
The commission is disbursed by a neutral third party at settlement: an escrow officer, a title company representative, or a settlement attorney, depending on local practice. That closing agent runs the whole financial choreography of the transaction, collecting the buyer’s funds, paying off the seller’s mortgage, settling taxes, and distributing commissions.
The commission shows up as line items on the Closing Disclosure, the standardized form federal regulation requires for most mortgage-financed transactions. The form lists the total paid to each brokerage and identifies who is receiving it. The closing agent calculates the exact figures from the verified sale price and then issues checks or wires directly to each brokerage, alongside every other payment the transaction requires. Brokerages typically have the money in hand within hours or a few days of the deed being recorded at the county.
How the Total Splits Between Brokerages
The total commission is divided between the listing brokerage and the buyer’s brokerage. People often assume a 50/50 split, but there is no mandated standard, and the division is negotiated. The listing side may keep more or less depending on what was agreed.
A nationwide settlement involving the National Association of Realtors changed how the buyer side gets set up. As of August 17, 2024:
- Listing brokers can no longer advertise a specific buyer-agent commission on a Multiple Listing Service. Compensation to the buyer’s broker can still be negotiated, just not through the MLS.
- Before touring a home, in person or virtually, a buyer must sign a written agreement with their agent stating exactly what the agent will be paid, as a flat dollar amount, a percentage, or an hourly rate. Open-ended ranges are not permitted.
Sellers still frequently cover the buyer-agent fee as a concession, and that arrangement is communicated outside the MLS. Concessions used this way cannot be conditioned on a specific payment to the buyer’s broker; they have to be structured as general concessions the buyer can apply to agent fees, loan costs, or repairs. A buyer who cannot negotiate seller-paid compensation is on the hook for their own agent under the written buyer agreement.
Referral fees can further reduce what the working brokerage keeps. When one firm refers a client to another, common in relocations, the referring brokerage typically receives around 25% of the receiving agent’s commission share, paid brokerage-to-brokerage after closing under a separate referral agreement.
How the Brokerage Then Pays the Agent
The commission check goes to the brokerage, not to the individual agent. In every state, a licensed salesperson has to operate under a supervising broker, so all compensation flows through that broker’s office first. The brokerage then pays the agent under whatever internal split they have agreed to.
Most agents are independent contractors, not salaried employees. A common arrangement gives the agent 70% and the brokerage 30%, but splits vary widely by experience, production, and the brokerage’s business model. High-producing agents may negotiate 80/20 or 90/10; newer agents might start at 50/50. On a $15,000 brokerage share at 70/30, the agent takes home $10,500 and the brokerage keeps $4,500 to cover overhead, technology, insurance, and administrative support. Some brokerages charge a flat monthly desk fee instead of, or on top of, a percentage split.
When a Broker Can Be Owed a Commission Without a Closing
Payment does not always depend on the sale actually closing. Under the legal standard used in most states, a broker earns the commission by producing a buyer who is ready, willing, and able to purchase on the seller’s terms. If the seller then walks away from the deal, or undermines it, the broker may still have a legal claim to the full fee.
Sellers can protect themselves by writing language into the listing agreement that conditions the commission on the actual closing or transfer of title rather than on the broker simply finding a qualified buyer. Without that language, the default rule in many jurisdictions is that the commission is earned the moment a suitable buyer is secured.
How the Fee Affects the Seller’s Taxes
For sellers, commissions are treated as selling expenses that reduce the taxable gain on the home. IRS Publication 523 lists real estate agent commissions among the costs subtracted from the sale price to calculate the “amount realized.” A lower amount realized means a smaller capital gain and, potentially, a smaller tax bill. A seller with a $500,000 sale price and $27,500 in commissions calculates the gain from $472,500, not from the full $500,000.
For a buyer who pays their own agent’s commission directly, that cost can be added to the home’s cost basis under IRS Publication 551, which includes sales commissions among the settlement fees and closing costs that go into the basis of purchased property. A higher basis means a smaller taxable gain years down the road when that buyer sells.