How do agents earn commissions?

Agents typically earn commissions as a percentage of the transaction value because this structure aligns their financial incentive with the outcome of the transaction. By taking a percentage of the total deal, agents are motivated to maximize the sale price, as their earnings increase with the overall value of the transaction. This commission-based model is prevalent in real estate, sales, and many service-oriented industries, where the agent's efforts directly impact the transaction's success.

Other compensation methods, such as flat fees or hourly rates, do not inherently incentivize agents to achieve higher sales figures, which may not motivate them to work as diligently on behalf of their clients. Therefore, the percentage-based commission model is widely regarded as the most effective means for agents to align their interests with those of their clients.