The vast majority of real estate agents work on commission, meaning that they are paid once the transaction closes. To simplify how commissions are routed, sales commissions are paid out of the seller’s proceeds, according to the terms of the listing agreement and/or the sales contract. Thus, the buyers’ agent commission is paid by the sellers, as a portion of their listing commission.
All commissions paid to a real estate agent have to pass through their broker; only a broker can pay a commission and only a broker can sign a listing agreement or a buyer representation agreement.
When the home is listed in the Multiple Listing Service (MLS), the listing broker discloses the terms of the commission to other cooperating brokers, so they know what compensation is offered before they bring their buyers to the listing. When the buyer’s broker presents an offer to the seller, it typically includes a provision to collect their share of the sales commission, as offered by the listing agent in the MLS.
At the closing, you will see the amount of commission being paid to each agent’s brokerage on the closing disclosure form. There will be a portion for the listing brokerage and a portion for the selling brokerage. Each agent will then be paid by their broker for whatever amount of the commission they have earned based on their compensation agreement with their brokerage.
Because agents are independent contractors, they use their portion of the commission to cover all of their business costs, including marketing, health insurance, licensing costs, business insurance, continuing education, and more.