Future Business Leaders of America (FBLA) Personal Finance Practice Test

How is the commission for real estate agents typically structured?

1. Flat fee per transaction

2. 5%-7% of the sale price of a home

3. Hourly rate for services

4. Percentage of the loan amount

The correct answer is: 5%-7% of the sale price of a home

Real estate agents typically earn a commission structured as a percentage of the sale price of a home, commonly ranging between 5% to 7%. This commission is usually split between the buyer's agent and the seller's agent, incentivizing both parties to work diligently to finalize the sale. The percentage-based structure aligns the agents' interests with their clients, as their earnings increase directly with the sale price. This approach is widely accepted and standard in the industry, making it a common practice for residential real estate transactions. Other structures, such as a flat fee or hourly rate, are less common and may be used in specific situations or markets but do not reflect the typical commission structure in real estate. A percentage of the loan amount is also not how agent commissions are calculated, as agents are primarily compensated based on the sale price of the property, rather than the financing aspect of the transaction.