A seller's guide
How real estate commissions actually work
The money, the incentives, and what's changed.
If you're thinking about selling your home, you've probably heard that "the seller pays 6%." That's been the conventional wisdom for decades — but it's both oversimplified and increasingly outdated. As of August 2024, the entire commission structure in U.S. real estate is being rewritten, and most buyers and sellers haven't caught up yet.
This guide walks through how commissions actually flow, where the money goes, why traditional commission structures can create misaligned incentives, and what your alternatives look like in 2026.
The money flow: a concrete example
Say you sell your home for $400,000 with a 5% total commission — that's $20,000 coming off the top at closing.
Step 1
The brokerage split
The total commission is traditionally split between two brokerages: the one representing the seller (listing brokerage) and the one representing the buyer (buyer's brokerage). The most common split is 50/50.
- • Listing brokerage: $10,000
- • Buyer's brokerage: $10,000
Step 2
The franchise fee (at franchised brokerages)
If either brokerage is part of a national franchise — Keller Williams, RE/MAX, Coldwell Banker, Berkshire Hathaway HomeServices, Century 21, and others — a franchise royalty is typically taken off the top before anyone else gets paid. This is usually 6–8% of the gross commission.
- • Franchise fee: ~$700 (7% of $10,000)
- • Remaining to split between agent and broker: $9,300
Step 3
The agent/broker split
Agents don't receive commissions directly. Legally, commission must be paid to the Broker of Record, who then pays the agent according to their contract. Common models include:
Percentage splits — A newer agent might start at 50/50 with their broker. Experienced producers negotiate up to 70/30, 80/20, or 90/10. The higher the agent's production, the better the split they can command.
Cap models — Used by Keller Williams, eXp, REAL Broker, and others. The agent pays a smaller percentage to the brokerage until hitting an annual cap (commonly $12,000–$25,000), then keeps 100% minus a small per-transaction fee for the rest of the year. Favorable for high producers, unfavorable for part-time agents.
For a mid-career agent on a 70/30 split:
- • Agent's share: $6,510 (70% of $9,300)
- • Broker's share: $2,790 (30% of $9,300)
Step 4
Transaction fees
Most brokerages also charge a flat per-transaction fee of $195–$625 to cover E&O insurance, compliance, tech platforms, and administrative overhead. This comes out of the agent's share.
- • Agent's take after transaction fee: ~$6,115 before taxes
Step 5
What the agent actually keeps
That $6,115 isn't take-home pay. From there, the agent covers:
- • Self-employment taxes (15.3%)
- • Federal and state income tax
- • MLS dues, NAR/state/local Realtor association fees ($500–$1,500/year combined)
- • Marketing costs for the listing (photography, signage, ads)
- • Vehicle, fuel, and showing expenses
- • Continuing education and licensing renewal
An agent's actual net on that $400K sale is often in the $3,500–$4,500 range — a meaningful number, but far from the $10,000 most sellers think is going to "their agent."
The 2024 settlement: what actually changed
In March 2024, the National Association of Realtors (NAR) settled a series of antitrust lawsuits — most notably Sitzer v. NAR (also called Burnett v. NAR), in which a federal jury had found NAR and several large brokerages liable for $1.8 billion (trebled to roughly $5 billion) for conspiring to inflate commissions.
The settlement took effect August 17, 2024 and made two structural changes:
1. Commission offers can no longer appear on the MLS
Previously, when a listing agent posted a home on the MLS, they specified exactly what commission the buyer's agent would receive. This information was visible to every agent in the market. Critics argued (and the jury agreed) that this enabled steering — buyer's agents avoiding homes with lower buyer-agent commissions.
2. Buyers must sign written representation agreements
Before touring homes, buyers now sign a contract with their agent specifying what that agent will be paid. This formally decouples buyer and seller agent compensation. The buyer is responsible for their agent's fee, though they can ask the seller to cover it as a concession in their offer.
In practice, this means:
- →Sellers are no longer automatically expected to pay the buyer's agent.
- →Buyers now negotiate their own agent's fee directly.
- →Concessions (where the seller covers the buyer's agent cost as part of the deal) are still common, but negotiated per transaction rather than baked in.
- →FSBO sellers can compete more fairly, because the buyer's agent is paid by their own client regardless of how the home is listed.
The incentive problem
Here's where commission-based real estate gets structurally interesting, and where most sellers don't realize what they're signing up for.
The speed problem (seller side)
Economist Steven Levitt analyzed thousands of Chicago-area home sales in Freakonomics and found that real estate agents sell their own homes for about 3% more than comparable client homes, and leave them on the market about 10 days longer before accepting an offer.
The reason is simple math. If your home is worth $400,000 and your agent could sell it in one week at $380,000 or in two months at $405,000, the agent's incentive math looks like:
- • Extra sale price: $25,000
- • Agent's marginal share: ~$525 (after brokerage and agent splits)
- • Extra time invested: 7+ weeks of showings, marketing, and holding costs
For the agent, the fast sale is far more profitable per hour. For the seller, the patient sale is far more profitable, period. This is why many sellers feel pressured to "be realistic" on price and accept the first reasonable offer.
The bidding problem (buyer side)
Buyer's agents earn more when their clients pay more — but the stronger incentive is actually to close at all. A buyer who loses a bidding war and walks away pays the agent zero. So buyer's agents often push clients to bid aggressively, not for the extra few hundred in commission, but because failed deals pay nothing.
The upgrade problem (buyer side)
Showing a client a $300,000 house vs. a $500,000 house is roughly the same amount of work, but the commission is $6,000 vs. $10,000. There's a structural reason first-time buyers often feel subtly nudged toward the top of their budget rather than the bottom.
None of this means individual agents are acting in bad faith. Most agents are honest professionals trying to do right by their clients. The issue is that the compensation structure itself creates incentive pressure that runs against the client's interest, and that pressure is baked in whether the individual agent notices it or not.
Your alternatives
The 2024 settlement has accelerated a shift that was already underway: more compensation models that don't rely on percentage-of-sale commissions.
Flat-fee listing services
You pay a flat fee (typically $500–$3,000) for MLS access and basic listing services. No percentage, no stake in your final price. The agent has no financial incentive to push you toward a fast sale.
Flat-fee buyer's agents
The buyer pays a flat fee ($3,000–$5,000) regardless of home price. Aligns the agent toward finding the right house, not the most expensive one.
Hourly consulting
Pay a licensed agent $150–$300/hour for specific services: contract review, negotiation coaching, comps analysis. Rare in practice, but legal in most states and dramatically cheaper for sellers who want professional guidance without full representation.
Buyer rebates
In 41 states, buyer's agents can rebate part of their commission to the buyer at closing. This partially offsets the "bigger house means more commission" incentive.
For sale by owner (FSBO)
The seller handles the transaction themselves, typically with tools and resources to replace traditional agent services: pricing analysis, MLS access via flat-fee services, contract templates, and transaction coordination. On a $400,000 home, FSBO can save a seller $20,000 or more compared to a traditional 5% commission.
Research on FSBO outcomes is mixed and often misrepresented. NAR's own data claims FSBO homes sell for less than agented homes, but that number conflates arms-length FSBO sales with family-member and friend sales (often intentionally below market). A controlled academic study of FSBO.com sellers in Madison, Wisconsin found that FSBO sellers netted roughly the same as agented sellers after commissions — meaning the savings largely accrued to the seller rather than being lost in a lower sale price.
What this means for you
Selling a home is the largest financial transaction most people ever make, and the commission structure has been largely unchanged since the MLS was invented. The 2024 settlement is the first real structural shift in a century, and it's created space for sellers to make choices they didn't previously have.
The right choice isn't the same for everyone. A complicated estate sale, a luxury listing, or a seller with no time or experience might genuinely benefit from full-service traditional representation. A straightforward sale of an owner-occupied home in a healthy market is an entirely different situation.
The point of this guide isn't to tell you FSBO is always the answer. It's to make sure you know what you're actually paying for, who the incentives are aligned with, and what your alternatives are. That's information the traditional real estate industry hasn't been particularly eager to share, and it's information you deserve before you sign anything.
This article is for educational purposes and does not constitute legal or financial advice. Commission practices, licensing laws, and allowable commission arrangements vary by state and are evolving rapidly in the wake of the 2024 NAR settlement. Consult a qualified professional for advice specific to your transaction.