A common question when considering a career in real estate is: How much can I make? Unlike traditional salaried positions, real estate agents are compensated through performance-based commission as independent contractors. This means that the more homes they sell, the greater their earning potential. However, how exactly do real estate agents earn their money and how does the process work? This article answers these questions and more to help prospective agents understand how real estate commissions work.

How Much Is Real Estate Commission?

For decades, American home sellers have paid some of the highest real estate agent commission fees in the world. According to the National Association of Realtors (NAR), these agent commission fees amount to about $100 billion annually. But in the wake of multiple class-action lawsuits alleging anticompetitive behavior, the NAR recently settled on a settlement agreement that will change how agent commissions are paid for brokered home sales in the future. Also read https://www.joehomebuyertriadgroup.com/sell-my-house-fast-mocksville-nc/

The NAR agreed to pay $418 million and to change its current agent commission fee rules. Specifically, it will no longer require listing brokers to offer buyer’s agents compensation in the MLS, and it will prohibit MLS participants working with buyers from offering broker compensation outside the MLS. These changes will allow consumers to negotiate fees directly with each other, which could ultimately lead to lower agent commission rates for both homeowners and agents.

NAR also acknowledged that requiring listing brokers to offer compensation to buyer agents reduces competition and keeps commission rates artificially high. But it’s unclear whether these changes will have the impact that critics hope for. It’s possible that the NAR will appeal the ruling, and even if it is upheld, it may take time for real estate commission rates to adjust.

Who pays the agent commission?

While some detractors have predicted that real estate commissions would eventually go the way of stockbrokerage fees and travel agency commissions, the fact is that these commissions have proven quite resilient. A number of real estate industry disruptors have tried to reshape the market by offering lower commission rates, but most have failed. Some, like the splashy YourHomeDirect and Foxtons discounters in the early 2000s, have made some headway in lowering broker commissions but have ultimately failed to significantly grow their share of the business.

When it comes to who actually pays the agent commission, most brokered sales are recorded in private inter-broker databases such as REBNY’s RLS broker database, MLS Long Island or Hudson Gateway MLS, and these databases do not publish information about real estate commissions. In general, however, the seller pays the agent commission and wraps it into the price of the property. If the property sells for a higher than asking price, the seller typically ends up with a profit that can be used to offset the real estate agent commission. However, if the property is sold for a lower than expected value, the seller will be responsible for paying the full commission to the agent.