Commission
Definition and meaning of Commission in real estate.
A commission is a fee paid to real estate brokers or agents for their services in facilitating the sale, purchase, or lease of a property, typically calculated as a percentage of the final transaction price.
In more detail
Commission rates and structures are negotiable by law and must be agreed upon in writing, typically in a listing agreement (a contract between a seller and their broker) or a buyer broker agreement (a contract between a buyer and their broker). In a standard sale, the listing broker and the buyer's broker often split the total commission, which is paid out of the seller's proceeds at closing.
Because real estate agents usually work as independent contractors, their individual split with their supervising broker is determined by their internal office agreement. If a transaction fails to close, a commission is generally not paid, though some listing agreements state a fee is earned once a ready, willing, and able buyer is secured.
Key facts
| Category | Buying & Selling |
|---|---|
| Timing of Payment | Paid at closing from the transaction proceeds |
| Rate Determination | Fully negotiable between the client and the broker |
| Recipient | The licensed real estate broker, who then pays the individual agents |
After selling their home for a negotiated price, the sellers paid the agreed commission from their proceeds, which was then divided between the listing agency and the buyer's agency.
Frequently asked questions
Who pays the real estate commission?
Typically, the seller pays the commission out of the home sale proceeds, but buyers can also negotiate to pay their agent directly under modern buyer broker agreements.
Are real estate commission rates set by law?
No, commission rates are not fixed by law and are negotiable between the client and the broker, as antitrust laws prohibit fixed rates.
Related terms
Sources & references
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