How Do Real Estate Commissions Work and Who Pays Them?

A real estate commission is the fee that pays for the professional services of listing and selling a home. That work includes pricing the property, marketing it, coordinating showings, negotiating offers, managing the paperwork, and getting the transaction to closing. The commission is typically calculated as a percentage of the final sale price, so everyone involved has an incentive to see the home sell for as much as possible.

The total commission is usually split between the listing agent's brokerage and the buyer's agent's brokerage. How that split is negotiated and documented changed under the buyer agency rules introduced in recent years, so it is worth reviewing the specific agreement you sign rather than relying on what the commission used to look like.

Historically, the seller paid the entire commission out of the sale proceeds, and the listing brokerage then shared a portion with the buyer's agent. That is still a common arrangement in Pennsylvania, which is why sellers often describe the commission as a cost of the sale along with closing costs and transfer taxes.

The rules now make buyer agent compensation a negotiable item that is agreed to up front in a written buyer representation agreement. The seller can still offer to pay it, the buyer can pay it directly, or the two sides can split it. What matters is that everyone agrees on the amount and the source in writing before the deal moves forward.

Under the updated industry rules, buyer agent compensation is no longer advertised on the multiple listing service as an offer made to other agents. Instead, the buyer and their agent agree on compensation in a written buyer representation agreement, and that amount is negotiated as part of the transaction.

For a buyer, this means asking about compensation before you start looking: what the agent charges, what services that fee covers, and whether you can ask the seller to pay it as part of the deal. A good agent explains these details plainly, and a written agreement protects both sides.

Commissions are percentages, so the dollar amount scales with the sale price. A typical total commission on a home sale in the Philadelphia area lands in a range that has long been considered standard in the industry, but the exact rate is negotiable and varies by brokerage and service level.

Whatever the rate, it pays for a package of services: accurate pricing, professional marketing, skilled negotiation, and the legal paperwork that keeps a sale on track. Comparing what different agents offer for their fee is just as important as comparing the fee itself.