How Much Do Real Estate Agents Make

How Much Do Real Estate Agents Make & How Are They Paid?

by The CE Shop Team

 

Understanding Real Estate Agent Income

When people consider whether they should get a real estate license and pursue a new career, the average salary is usually the deciding factor. By now, you likely know you can make a lot of money by working in real estate, or you wouldn’t be here. At the same time, you no doubt just thought to yourself: How much does a real estate agent actually make? Well, the short answer is: it depends. The full-time agents who put in the work can make much more than the average real estate agent salary while others who choose to work part-time will earn far less. This easy-to-follow guide explains what to expect financially when starting your career as a new agent. 

Understanding Real Estate Agent Commission

A real estate commission is a fee that the seller pays to the real estate agent after making a sale on a home. It is usually paid to the brokerage for which the real estate agent works, then it’s split based on their pre-set contract. Typically, the commission fee is between 5-6% of the home sale price. 

Competition is often fierce when it comes to real estate commissions. But keep in mind that all commissions are negotiable before they’re set in the listing agreement. An agent defines their commission rate with the buyer or seller before the transaction occurs and then writes their commission rate into the listing agreement contract accordingly.

In simple terms, the commission is based on the final price of the property as defined in the brokerage’s contract with their real estate agent.

Here are some examples of what a typical real estate agent fee looks like:

  • Referral Fees - These fees represent a negotiated percentage paid to another company for sending over a client, either as a seller or buyer. They are deducted from the commission before it is split.
  • Real Estate Franchise Fee - Some franchisee brokerages pay a percentage fee of each commission to their franchise. This fee is paid before the Broker splits the commission with their agent.

The final commission paid often represents weeks’ or months’ worth of work in which the real estate agent must price the home, market it, negotiate with homebuyers, and sit down with all parties at the closing table. This process is one of the biggest factors in understanding how much real estate agents make.

Commissions are typically split among four parties:

  • The listing agent, who represents the homeowner or home seller
  • The listing Broker, for whom the listing agent works
  • The buyer's agent, who represents the homebuyer
  • And the buyer's agent's Broker, for whom the buyer’s agent works

Before moving on, let's differentiate between some of the terms used above. So, what are the differences between a real estate “agent,” a real estate “Broker,” and a “REALTOR®?”

A “REALTOR®” can be either a Sales agent or a Broker, depending on the state. To become a REALTOR®, the agent or Broker must join the National Association of REALTORS® (NAR).

The differences between a Broker and an agent are significant, but the terms also vary state by state. Typically, when people use the terms interchangeably, they’re actually referring to an “agent” or a “Salesperson.” They’re not referring to a real estate Broker. The agent is the person who goes out to show homes and connect people with the property they’re seeking. When that agent makes a sale, their commission is split with their Broker, or the person for whom the agent works.

The biggest difference between real estate agents and Brokers is that a Broker is free to work independently. As mentioned previously, Brokers can hire real estate agents to work for them. All real estate commissions must be paid directly to the Broker, then the Broker splits that commission with any other agents involved in the transaction.

In simpler terms: The real estate brokerage takes on more legal responsibility and has built a brand, which is why they get a percentage of everything that the real estate agent makes. They play an important role in real estate transactions, even if the buyers or sellers don’t directly interact with the brokerage.

Pro Tip:

To really get a feel for how much real estate agents make, research your local real estate market and shadow a working agent.

Real Estate Commission Examples

Let’s say an agent takes a listing on a $300,000 home at a 6% commission rate. The house sells according to plan, and the listing Broker (along with the buyer’s Broker) each receives half of the commission. These Brokers would then split the commission with their agents. The most common split between agent and Broker is 60/40, though this ratio is not set in stone and can be negotiated.

In this scenario, the Brokers would receive $9,000 each ({$300,000 * 0.06}/2) to split with their respective agents. If the listing agreement declares the commission split to be 60/40, then each agent will receive $5,400 ($9,000*.6) while each Broker takes home $3,600 ($9,000*.4).

In some instances, the commission may be split among fewer than four parties. You’ll remember that Brokers typically have much more flexibility than agents. Let’s say a Broker or their brokerage lists a property on the multiple listing service without the use of an employed agent and then finds a buyer. The Broker and brokerage would keep the full commission.

Again, the final amount each individual receives is determined by who is involved the most in the sale, plus who has the most experience in past sales. Only ambitious agents can work their way up quickly in sales, earning a sizable chunk of each commission ahead of listing agents, listing Brokers, and their own Broker.

That said, it is common for more experienced or top-producing agents to receive a larger percentage of the commission. In such cases, you might see a 70/30 split where 70% goes to the real estate agent and 30% goes to the Broker. 

Another possibility is that one person serves as both the selling and buying agent for a single transaction. In that scenario, the agent would only need to give one portion of the commission to their brokerage, as only one agent is facilitating the sale.

In rare instances, real estate agents can keep 100% of the commission. This situation typically occurs if the real estate agent is paying a “desk fee” to their Broker. In other words, the agent pays the Broker for their sponsorship but is less involved with the brokerage than a typical real estate agent.

Remember that with taxes involved, those commissions are reduced from their initial amounts. This is why some agents receive a regular salary in addition to their commission.

Real Estate Income Factors

Aside from commission, there are a number of factors that impact the average real estate agent's salary. When trying to parse out how much a real estate agent makes, the following components are typically the most significant.

1. Hours

The more hours you put in, the more home sales you’ll likely make. One of the cool things about real estate is that you decide your time commitment. You can even do it part-time, but like many other careers, the hours put into the job play a large role in how much money you’ll take home. The more you put in, the more you get out of it. This goes beyond normal work hours and typical real estate actions; you’ll want to engage in networking as efforts and time spent there can truly pay off (and pay out!).

2. Specialty or Niche

The type of real estate being sold impacts how much real estate agents make. For example, if you specialize in selling high-end second homes, you may earn more than someone selling smaller residences.

3. Location

After you read that, a voice in your head likely said, “Location, location, location.” Though it’s a cliche of the industry, it’s absolutely true! Location plays a large role in how much money there is to make in real estate. In general, real estate professionals in major markets like New York City or Orlando, Florida, will make more than those selling in a rural part of Texas. Not surprisingly, California cities are almost always half of the top ten best-paying cities in the country for real estate agents.

4. Experience

High earners make selling real estate look effortless, but really that's the result of many years of experience and hard work. This disconnect is the main reason that people start and stop their real estate careers; they have unrealistic expectations for how quickly they can earn the big bucks. How much real estate agents make is important, but keep it realistic: As with any new career, the first year can be challenging, but agents often see better results after each year of experience. So stick with it, grind it out, and you’ll reap the benefits eventually.

5. Brokerage Type

Look at a brokerage like a team. Everyone who works for the brokerage is part of that team, whether they’re a real estate agent or an Associate Broker. The ultimate goal remains the same: to sell and buy as many houses as humanly possible. The bigger the brokerage firm, the larger that revenue pie is. Smaller brokerages often focus on offering the best and most seamless process possible without the “big name.”

If you’re just starting out on your real estate journey, you may not realize that there are different types of brokerages. In most cases, there are national brokerages and independent brokerages.

The national brokerages are the names you’ve likely heard of — Coldwell Banker and RE/MAX, for example. An independent brokerage is one that is not affiliated with any major player in the industry. As the name suggests, it’s independent and typically local. 

Alternative Real Estate Compensation Models

While rare, there are alternatives to the commission model that we’ve discussed at length. One such alternative includes brokerages actually paying a base salary. In fact, one company not only pays its agents a salary but throws in bonuses based on customer satisfaction. That said, most real estate agents are paid through their commissions, so that’s likely what you can expect as you enter the industry. And if you’re still feeling confused or concerned, don’t worry - we have a myriad of free resources available to teach you everything you need to know about real estate.

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