Dec 28, 2023
Over a three stretch in 2008-2011, thousands of Realtors left from the profession as a result of the 2007-2008 housing crisis. Ten years later COVID shook up the housing market, leading to huge price gains and big commission paychecks for agents. Today, real estate is still a fantastic career or side hustle despite high interest rates and low housing supply.
Considering a career in real estate sales? First it’s important to understand how agents get paid including the total percentage of the sale that agents earn.
According to the National Association of Realtors, the median gross income for Realtors was approximately $41,800 in 2020. However, this figure can be higher for more experienced Realtors, with those having 16 years or more of experience earning a median gross income of about $75,000. It’s important to note that these figures can fluctuate based on market conditions and individual performance. Realtors’ income can vary significantly based on experience, location, and market activity.
When an agent lists a home, they earn a commission that is calculated based on the price of the home. Listing commissions can typically range from about 2-3% on average. The seller actually pays the listing commission and buyer agent commission, but generally an agent only earns one side of the commission – except for in the unique and rare scenario of “dual agency” – which occurs when one agent represents both the buyer and the seller.
Let’s look at example of listing commission. If a homeowner sells their home for $400,000 home and they’ve agreed to a the commission of 3%, then the listing agent brokerage will earn 3% or $12,000. Notice that I wrote “listing agent brokerage”. That’s because the agent themselves don’t technically earn the commission, but rather their broker does. The agent keeps a portion of the commission after the brokerage keeps an agreed upon “split”.
In Texas, Realtors typically earn between $71,477 and $97,019. This range varies depending on factors like location within the state, experience, and the current real estate market conditions.
In Florida, the typical range for a Realtor in Florida is between $69,077 and $93,762. This variation in income is influenced by numerous factors, including location, experience, and the type of real estate agency they work for.
In Georgia, Realtors have a salary range that typically falls between $70,555 and $95,769. This range can vary widely depending on various factors like city location, experience, and other professional qualifications.
An agent’s experience level significantly influences their earning potential. Seasoned agents typically have a more extensive network, refined skills, and a deeper understanding of the market, leading to more transactions and higher-priced listings. Newer agents often face a steeper learning curve and may initially earn less as they build their reputation and client base.
Real estate agents’ primary income source is commission from property sales. This commission is often a set percentage of the property’s sale price, meaning higher-priced sales yield larger commissions. Agents must also consider the commission split with their brokerage.
The health of the real estate market plays a crucial role. In a booming market, agents may experience more transactions and higher property values, boosting their income. Conversely, in a slow market, reduced sales and lower property prices can significantly impact earnings.
Building a robust network of clients, other agents, and industry professionals can lead to more referrals and opportunities. Strong relationships and a good reputation in the community often translate to higher earnings.
Agents incur various expenses, including marketing, travel, and office-related costs. Effective management of these costs is essential, as they directly impact net income.
Agents working under a brokerage may need to pay certain fees or a percentage of their commission to the brokerage. These fees can vary significantly between brokerages, affecting the agent’s take-home pay.
Real estate agents primarily earn money through commissions, which are a percentage of the sale price of the properties they help buy or sell. The commission rate can vary, but it is typically split between the buyer’s and seller’s agents, and further shared with their respective brokerages.
The actual earnings of an agent depend on the number of transactions they complete and the value of the properties involved. Seasonal trends and the overall health of the real estate market also influence an agent’s income.
Real estate agents make their income primarily through commissions. This means their earnings are directly tied to the properties they sell or help clients purchase. The commission is usually a set percentage of the property’s sale price, and it is typically split between the buyer’s and seller’s agents. The final amount an agent receives depends on this split, the property’s selling price, and the number of transactions they complete.
Furthermore, it’s important to recognize that the real estate market’s condition significantly impacts agents’ earnings. In a thriving market, properties sell quickly and at higher prices, leading to more frequent and lucrative commissions. However, in a slower market, agents may experience longer sales cycles and decreased prices, affecting their income. This cyclical nature of the real estate market makes agents’ earnings variable and somewhat unpredictable.
All brokerage design agent splits differently. However the national average is about 80% – 20%. This means that the agent keeps 80% of the commission on transactions and the brokerage keeps 20%.
So, using the example above – if an agent sells a house for $400,000 at a 3% listing commission and with a broker split of 80%, then the agent will keep $9,600 ($12,000 x 80%).
Agent splits are often dictated by these factors:
We will explain the commission cap a bit later, but the most important factor in commission splits is the source of the client. If the agent themselves were the procuring cause of finding the lead (home seller or home buyer), then the split is likely to be higher. However, if the brokerage provides a lead to one of their agents with little or no effort from the agent, it is likely that the broker will keep a higher proportion of the split.
The average total commission paid by sellers in the US is about 5.5%. You’ve probably heard that the customary total commission is 6% and that is true. However, all commissions are completely negotiable. In other words, the seller may negotiate the commission with their listing agent or offer a lower commission to the buyer agent. In addition, discount brokerages may ask for significantly lower commissions. For example, SimpleShowing offers a standard commission of 1%.
In general, buyer agent commission is always negotiable. Some agents may discourage the seller from offering a lower commission, but it is ultimately still up to the seller to set the buyer agent commission offered. The total sales commission will be spelled out in the listing agreement and agreed to between the home seller and the listing agent.
It’s important to note that commissions also vary by state and city. Some regions charge lower commissions due to the competitive nature of the market or as a result of high (or low) home values.
Listing agents earn commissions by fulfilling these duties as the listing agent:
The average agent in the US closes 7 home transactions per year, while the top 5% of agents in the US closes 23 home transactions per year.
The top 1% of agents close 41 homes per year, about 6x as many as the average agent.
So, let’s dig into the numbers and to demonstrate what this translates into for income.
If an average agent in a typical US market, where home values are $350,000 closes 7 deals per year and the commission rate is 3%, the agent will earn $58,800 (assuming an 80% broker split).
A top 5% agent who closes 23 homes per year in the same market will earn $193,200.
A top 1% agent who closes 41 homes per year in the same market will earn a whopping $344,400! Keep in mind that this number can escalate quickly in a more expensive market.
Most agents in the top 5% have been in the business for an average of 9 years. It takes several years to build up a client base while also attracting new clients. Top agents are proficient at using lead generation tools and client referrals to boost their business.
Veteran agents also maintain high commission rates when confronted with clients that ask for a lower, negotiated commission structure.
Lastly, top agents generally build a team of co-agents that can help with showings and listing management tasks and marketing.
The income of a real estate agent is multifaceted, hinging on several critical factors. Most real estate agents, after obtaining their real estate license, embark on a journey where their earnings are closely tied to the property’s selling price, their commission split with the listing broker, and the final sale price achieved. The National Association of Realtors reports that the median gross income of real estate professionals varies, influenced by factors like the number of sales they close, their role as a buyer’s broker or managing broker, and their tenure in the industry. Experienced agents often see higher returns due to their established networks and reputation.
The real estate career, while promising, requires a deep understanding of market trends and professional commitment. Real estate agent salaries, although potentially lucrative, depend heavily on the agent’s ability to navigate market fluctuations and client expectations. The commission an agent earns, a percentage of the property’s selling price, is shared with their brokerage, and the division of this commission is a critical element of an agent’s net income. As agents gain experience and close more sales, their potential for higher earnings increases, highlighting the dynamic and rewarding nature of a career in real estate.