Homeowner is referred to the listing agent by a referral program (HomeLight, Sold.com, Dave Ramsey, parts of Zillow, parts of Realtor.com, etc.).
The listing agent's gross revenue from this transaction is $3024. Then, you have to realize they pay for all those marketing materials, photos, videos, etc out of their own pockets. If they spent $500 on photos/videos their income is down to $2524. After paying self-employment and all the other income taxes (varies depending on income, but could be 25% or higher for a full-time successful agent) their income might now be $1893. Also don't forget agents have no benefits so they have to pay out of pocket for health insurance, disability insurance, and liability insurance. Not only that, they have to pay yearly fees to the various Realtor associations and licensing fees to the state. Further, some agents pay hefty fees to Zillow and other sites to be featured as "premier agents," sometimes up to $2,000/month.
This is how you can pay $17,500 but your agent nets only $1,893.
All that said, what I've illustrated here is a worst-case scenario for the agent. It features a combination of a referral partner, an expensive national brand, a high commission split with the listing broker, and marketing costs paid out of the agent's pocket.
Yet, not every transaction is a worst-case scenario.
This agent has a 75/25 split with their broker, no referral partner, no licensing fees, and the MLS is paid by the broker.
Even if this agent spent the same on adversting, they would still walk away with $6,062. After taxes, the listing agent in this scenario could walk away with $4546, which is more than double of the previous example.
Low pay can make any worker unmotivated and real estate agents are no exception. Be aware that if you are hiring an agent who is in the "worst-case scenario" I've described above, comparatively little of your money is actually going to them. An agent paying referral partners and large licensing fees could need to sell more than 40 homes each year to make the area median household income. It can be difficult to manage such a high volume of transactions. An agent in the best case scenario needs to sell about 11 homes each year to make the area median income, which is easily possible for an experienced and skilled agent.
Some agents use a "team" model where the leading agent works with several associates to try to handle a large volume of business. Those associate agents are often making less than even the worst-case scenario described above because they also have to pay the leading agent on their team. The team leader often benefits because they can get more reach for their brand and collect fees from their associates. If you hire an agent based on a billboard sign or TV commercial, and you see on Zillow that they do 200+ transactions a year, you're likely going to be working with an associate who is very possibly new to the business and is effectively making less than minimum wage.
Selling Later surveyed agents recently about negotiating their commissions. Of those surveyed, 70% said they would be more willing to negotiate commissions with their client if there was not a referral fee involved. This also applies to discount saving referral programs in which they offer you "savings" yet pocket a referral fee. The agent would be more likely to give you more or a "savings" if they didn't have to pay a bigger referral fee to another platform.
When searching for agents, be sure to avoid referral platforms and instead contact agents directly via social media or their personal websites. Not only does this increase your chance to save money, but most referral programs have affiliate programs that they will share your data and could lead to an increase in solicitations from other services.