How Real Estate Commissions Work: Rates, Splits & the New Rules

How Real Estate Commissions Have Traditionally Worked

For decades, real estate commissions in the United States followed a standard structure: the seller agreed to pay a total commission (typically 5-6% of the sale price) when listing the home. This commission was split between the listing agent's brokerage and the buyer's agent's brokerage, usually 50/50.

The commission was paid from the seller's proceeds at closing. On a $500,000 home at 6%, the seller paid $30,000 in commission — $15,000 to each side. The seller never wrote a separate check; it was deducted from the sale proceeds by the title company or closing attorney.

The 2024 NAR Settlement: What Changed

In March 2024, the National Association of Realtors agreed to a landmark settlement in the Sitzer/Burnett lawsuit that fundamentally changed commission structures. The two key changes, effective August 2024:

1. No more MLS commission offers. Sellers' agents can no longer advertise what they will pay a buyer's agent through the MLS. This eliminated the decades-old practice of pre-setting buyer agent compensation in the listing.
2. Mandatory buyer representation agreements. Buyers must sign a written agreement with their agent specifying the agent's compensation before touring homes. This makes the buyer aware of — and responsible for — their agent's fee.

The practical impact: commissions are more transparent and more negotiable than before. Early data from 2025 shows average total commissions declining modestly — from roughly 5.5% to 5.0-5.3% nationally, according to real estate analytics firms.

Commission Math: What You Actually Pay

Here is what commission looks like at different rates and home prices:

Each 1% reduction saves significant money. On a $500,000 sale, dropping from 6% to 5% saves $5,000. Use our real estate commission calculator to see your exact numbers.

How Commission Splits Work

The total commission goes through two levels of splitting:

1. Listing side vs. buyer side: Typically 50/50, though some markets see 60/40 or other variations.
2. Agent vs. broker: Each agent splits their portion with their brokerage. New agents may receive 50% of their side; experienced agents often get 70-90%. Top-producing agents at some brokerages keep 100% and pay a flat desk fee instead.

On a $400,000 sale at 5% total: the listing brokerage receives $10,000, the buyer's brokerage receives $10,000. If the listing agent has a 70/30 split with their broker, the agent keeps $7,000. From that, the agent pays self-employment taxes (~15.3%), marketing expenses, MLS dues, E&O insurance, and other business costs. The agent's actual take-home on a $20,000 total commission might be $4,000-$5,000.

How to Negotiate Commission

For Sellers

• Interview 3+ agents. Ask each about their commission structure and what services are included at different price points.
• Leverage your home's desirability. In hot markets with low inventory, homes sell quickly with less marketing effort — reasonable grounds for a lower commission.
• Ask about tiered structures. Some agents offer a lower rate on the first X dollars and a higher rate on the sale price above a threshold.
• Consider flat-fee or discount brokerages. Services like Redfin (1-1.5% listing fee) or flat-fee MLS listings ($300-$500) can save thousands, though with potentially fewer services.

For Buyers (Post-NAR Settlement)

• Understand your agreement. Before signing a buyer representation agreement, negotiate the fee. You are not locked into 2.5-3%.
• Ask the seller to contribute. Sellers can still agree to pay all or part of the buyer's agent fee as part of the purchase negotiation.
• Consider hourly or flat-fee options. Some buyer's agents now offer hourly rates or flat fees for specific services instead of percentage-based commissions.

Alternative Commission Models

• Flat-fee listing: Pay $3,000-$5,000 regardless of sale price. Best for sellers confident in pricing and marketing their own home.
• Discount brokerages: Redfin, Houwzer, and similar companies charge 1-1.5% listing fees. Trade-off: often less personalized service and a shared agent model.
• FSBO (For Sale By Owner): No listing commission, but you may still need to offer buyer agent compensation. FSBO homes sell for a median 23% less than agent-listed homes (NAR, 2024), though correlation does not prove causation.
• iBuyers: Companies like Opendoor make instant offers. Convenient but typically offer 3-8% below market value, which often costs more than a traditional commission.

The Bottom Line

Real estate commissions are the single largest transaction cost in buying or selling a home. Understanding how they work — and knowing they are negotiable — can save you thousands. The post-NAR settlement landscape has made commission structures more transparent, giving both buyers and sellers more leverage in fee discussions.

Use our free commission calculator to see exactly how different commission rates affect your net proceeds from a sale.

Frequently Asked Questions