How Real Estate Commissions Work
For most real estate agents, understanding your Gross Commission Income (GCI) versus your Net Income is vital for business planning. While a 3% commission on a $1M home sounds like $30,000, the amount that hits your bank account is often much less.
The Commission Split Breakdown
Commission generally flows through several hands before reaching the agent:
- Gross Commission: The total fee paid by the seller (usually 5-6%), split between the Listing Brokerage and the Buyer's Brokerage.
- The "Split": Your brokerage takes a cut of your revenue. Common models include:
- 50/50 Split: Common for new agents who need training and leads.
- 80/20 Split: Common for experienced agents (Agent keeps 80%).
- 100% Commission: Agent keeps 100% but pays a monthly desk fee or high transaction fees.
- Franchise Fees: Big-box brokerages often continually deduct 5-8% "off the top" for national branding fees before the split applies.
- Taxes: Don't forget, you are an independent contractor (1099). You need to set aside ~30% of your Net Income for taxes.
How to Earn More Commission
To increase your take-home pay, you can:
- Negotiate Your Split: As your sales volume grows, leverage your success to negotiate a better split with your broker (e.g., moving from 70/30 to 80/20).
- Cap Structure: Look for brokerages with a "Cap". Once you pay a certain amount to the broker (e.g., $20,000), you keep 100% of the commission for the rest of the year.
- Increase Average Price Point: It takes the same effort to sell a $300k home as a $600k home, but the paycheck is double.
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Frequently Asked Questions
Who pays the real estate commission?
Traditionally, the Seller pays the total commission, which is then split between the listing agent and the buyer's agent. However, recent lawsuit settlements (NAR settlement) are changing this landscape, and buyer agent commissions may increasingly be negotiated directly with buyers.
