In a real estate transaction, the agents or brokers involved are typically paid by the seller via commission as opposed to a flat fee. In our easy-to-use real estate commission calculator, you’ll learn the math behind commission rates and how to calculate your earnings from future deals.
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How the Real Estate Agent Commission Calculator Works
The real estate commission calculator uses a simple equation: The agreed-upon payment percentage (or commission rate) divided by 100 then multiplied by the price of the property. For example, if a homeowner sells their home for $200,000, and the commission rate is 5%, the agent’s commission would be (5/100) x 200,000 = $10,000.
It’s important to remember that commission is included in the cost of sale—it’s not an extra fee. In the example above, the homeowner receives $190,000 for the sale and the other $10,000 automatically goes toward a commission for the agents or brokers involved.
In some cases, the commission is not set at an even rate. For example, an agent may charge an 8% commission for the first $100,000 and 4% for the rest. To calculate this uneven rate, you can simply break it into two equations and then add together the results to find the total rate.
- (8/100) x 100,000 = $8,000
- (4/100) x 100,000 = $4,000
- 8,000 + 4,000 = $12,000 total commission
Example of a Real Estate Agent Commission Split Calculator
Calculating the real estate agent commission split is very simple. Typically, the agent/broker representing the seller and the agent/broker representing the buyer will split the total commission 50/50. There are two methods to go about calculating this split rate, which we’ll demonstrate using the same numbers from above:
Assuming the homeowner sells their home for $200,000 and the commission rate stays at 5%:
- Take the total commission rate and divide it by 2
- (5/100) x 200,000 = 10,000
- 10,000/2 = $5,000 commission for each agent
- Calculate using half of the agreed-upon percentage
- 5/2 = 2.5%
- (2.5/100) x 200,000 = $5,000 commission for each agent
Understanding the Average Commission Rate and Market Trends
To ensure you’re getting a good rate, it’s important to have a thorough understanding of your market and keep up to date on industry trends. In 2023 the national average commission rate is 5.37% according to data from Clever.
2023 has been a great year for real estate agents in terms of commission growth. The national real estate agent commission saw its most significant increase in a decade going from 4.94% in 2020 to 5.37% in 2023. According to Bankrate, commission rates have been on a steady decline since the early 1990s and are typical for slow economic periods. Inflation in 2023 is a major factor that impacted this upward shift in commission rates.
During the real estate boom of 2005 to 2007, commission rates fell as so many options were available for buyers and sellers. However, in 2023 with high demand for housing, and a shortage of available homes, real estate agents have been able to command higher fees for their services, leading to increased income and profitability.
This isn’t the first time analytics have seen this type of commission fluctuation. During the Great Recession from 2007 to 2009, commission rates actually went back up as sellers had fewer options and were more willing to pay for the help of agents and brokers.
As we look ahead to 2024, there are already signs that the housing market will continue to cool. In January of 2023, declining mortgage rates brought back some buyers to the real estate market. However, this trend has since come to an end, at least for now, resulting in home sales prices continuing their downward slide. Despite this, many economists hold mixed opinions about how much further home prices will drop over the course of the year. Regardless of which predictions come true or not, it’s important to note that commission rates vary widely by location, so check your localized market for more accurate information.
Real Estate Commission Calculator FAQ’s
Below are a few clarifying questions and answers to shed more light on how real estate commission works.
What is a Realtor’s Commission on a Million-Dollar Home?
Assuming an average commission rate of 5%, a realtor’s commission on a million-dollar home is $25,000. You can calculate this using one of the methods above:
- (5%/100) x 1,000,000 = $50,000 total commission
- $50,000/2 = $25,000 commission per realtor
Note that this amount will change depending on the agreed-upon commission percentage.
How Much Do High-End Real Estate Agents Make?
According to the U.S. Bureau of Labor Statistics, the top 10% of real estate agents made over $176,080 in 2021. The Balance also writes that “rock star” agents doing millions of dollars in deals per year are most likely millionaires themselves based on commission rates.
Do Realtors Ever Lower Their Commission?
Realtors do lower their commission depending on economic trends. A housing boom will typically correspond with lower commission rates while a recession may lead to higher rates. However, it’s important to note that these are trends on a grand scale. On a personal level, realtors are much less likely to lower their rates for individual clients.
Are Commissions Paid on Gross or Net?
Commissions are paid on the gross value of the home. This means that the rate is calculated using the property value before taxes and other fees are deducted from the total amount. Once you’re finished checking out the real estate commission calculator, head over to our cap rate calculator to learn about this important home valuing metric. And, be sure to visit our rental application and tenant screening pages to learn more about these easy-to-use, fully online tools.
