Real estate agents enter the profession from all walks of life. Some become a real estate agent for the money, while others are attracted to the glamour, excitement and challenges of selling property. For many, a real estate career offers the opportunity to be your own boss, and that reason is a motivating factor for those who want to get out from under the thumb of corporate America.
How Much Does an Average Real Estate Agent Earn?
Most first-year real estate agents earn very little, primarily because they are struggling to learn the business while they build a client base. As the years go by, agents can rely on referrals from satisfied clients to continue building their business.
According to Salary.com, most real estate agents earn on average between $34,000 and $45,000 annually.
How much agents make depends on the number of transactions they complete, the commission paid to the brokerage and their split with the sponsoring broker.
How Real Estate Commissions are Paid
Apart from buyer broker agreements, which allow for direct payment to a buyer's broker, most real estate agents are paid through a listing agreement, which is signed by the seller and the listing agent. The agent signs on behalf of the brokerage.
The listing agent then shares part of that commission with the agent who represents the buyer. All real estate commissions are negotiable, and are paid directly to the broker, not the agent. Agents work for the broker. Typically, it is the seller who designates how much the buyer's agents are paid.
A listing commission can vary from 1% to 10% or more of the sales price. Let's look at an example of how much a listing agent earns if the commission paid is 7%, with a 50% split with the brokerage who produces the buyer.
Say the sales price is $200,000. The total commission at 7% would be $14,000, of which $7,000 is retained by the listing brokerage. From that $7,000, the listing agent is paid on a split, which on average is around 60% for a first-year agent.
This means the agent would gross $4,200. After deducting federal and state taxes, which could amount to 30% or more, the agent would net about $2,940. The agent also pays overhead and expenses, which could eat up another 20% of the gross, resulting in a net income of $2,100.
Contrary to popular belief, most real estate agents sell only 4 to 6 homes a year. The saying is 20% of the agents do 80% of the business. In the example above, an agent who comprises part of the 80% category (that wins 20% of the business) would gross about $18,000 a year.
Earned Income Varies Among Types of Real Estate Agents
Top producers earn a lot more than the average real estate agent. Each real estate office sets its own standards for top producers, but it's probably safe to say that a top producer would need to sell at least one home a month to qualify. Mega-stars earn $200,000 per year and up.
Some agents have formed teams and hire other agents to work for the team. Typically, in this type of arrangement, the team leader earns credit for each sale, even if the team member originated the transaction. Most team leaders are strong listing agents.
Discount real estate brokers have to sell more property than a traditional full-service real estate brokerage to earn the same amount of money. What discount brokers may sacrifice in service is made up by quantity of transactions.
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