Example of a Real Estate Commission

Here's an illustration of how a real estate agentgets compensated as a percentage of the commission earned by the listing broker on the transaction.

Assume an agent accepts a listing for a $200,000 property at a 6% commission rate. This works out to a total commission of $12,000. If the home sells for the asking price, the listing broker and the buyer's agent's broker split the fee 50/50, or $6,000 ($200,000 sales price x 0.06 commission 2). The commissions were then shared between the brokers and their representatives.

A typical commission split is 60 percent to the agent and 40 percent to the broker, however, the split might be 50/50, 60/40, 70/30, or whatever ratio the agent and broker agree on. It is usual for more experienced and top-producing agents to get a higher proportion of the commission.

In our case, each agent earns $3,600 ($6,000 X 0.6) while each broker retains $2,400 ($6,000 X 0.4). The ultimate commission breakdown would be as follows:

  • $3,600 for the listing agency
  • $2,400 for the listing broker
  • $3,600 for a buyer's agent
  • Broker for the buyer's agent: $2,400

However, commissions are often divided among fewer parties. For example, if a broker offers property and finds a buyer, the broker is entitled to the whole 6 percent compensation (or whatever the rate in the listing agreement is). Alternatively, if a listing agent sells the property by serving as both the seller's and buyer's agent, that agent will divide the whole commission with their sponsoring broker. Assuming the same 60/40 split, if the commission is $12,000, the broker keeps $4,800 and the agent receives $7,200.

Of course, taxes and company expenditures reduce an agent's profits, as they do in other professions. Federal, state, and self-employment taxes, as well as the expense of conducting business(insurance, dues, MLS fees, and advertising), end up eating into the agent's commissions.

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