If you want to become a real estate agent but don’t know how much do real estate agents make, you have come to the right place.
Most people enlist the assistance of a real estate agent at some point in their lives to either purchase or sell a home. Real estate transactions require many steps, making real estate agents an essential part of the profession.
Real estate agents are mainly compensated for their services through commission percentages based on the property’s selling price. The amount of money that real estate agents make annually depends on various variables, including the number of transactions they make, the commissions they collect, and the share with their broker.
This article will discuss how much do real estate agents make and how they earn it.
How much do real estate agents make?
According to Indeed.com, real estate agents’ annual salaries range from $85,597 to $112,309, depending on years of experience. The median yearly wage in 2021 was $48,770, registered by the U.S. Bureau of Labor Statistics.
The highest 10% of agents earned more than $102,170 in 2021, while the top 10% of brokers earned $176,080.
Real estate brokers receive commissions directly from brokers for successful home sales. Commissions usually range from 5% to 6% of the listing price, but they can vary from 1% to 10%, depending on the specific contract.
Real Estate Commission
The connection between brokers and agents helps explain how real estate agents earn commissions. Real estate agents make a commission as a percentage of a property’s selling price. Agents work for real estate brokers, receiving commissions directly from them.
An agent may only act under the license of a certified real estate broker, who ensures that agents follow state and federal laws. Agents are not permitted to provide services on their own, and they may not accept payments directly from their customers.
Real estate brokers can operate independently and employ real estate agents as their employees. Every real estate office uses one broker.
Clients must pay all commissions directly to the broker, who then shares them with any agents involved in the deal. Real estate agents become realtors when they join the National Association of Realtors and adhere to its moral code.
How Real Estate Commissions Work
When a property is listed, the seller and the listing agent sign a listing contract, which specifies the terms of the listing, including the seller’s commission. It’s critical to note that commission rates are always negotiable.
Federal antitrust law prohibits real estate professionals from attempting to set uniform commission rates for the profession.
The commission may be between 5% and 6% of the final sale price, but it may vary according to market conditions. The seller is responsible for the commission unless the buyer and seller agree to split it.
You may say that the buyer always pays at least part of the commission, either directly or indirectly (through a higher purchase price), because the seller typically includes the commission in the asking price.
Both the seller’s agent and the buyer’s agent are paid through their sponsoring brokers’ contracts. The broker and agent may split the commission 50/50 or in any proportion they desire.
In a conventional real estate transaction, the commission is divided among four people: the listing agent, the listing broker, the buyer’s agent, and the buyer’s agent’s broker, respectively.
Example of Real Estate Commission
Let us understand how much do real estate agents make by example.
A listing agent often works with a buyer’s agent or an agent who helps clients locate a property.
At the end of the transaction, the listing agent and the buyer’s agent split the total commission, which is deducted from the full amount. The following illustrates how a $300,000 house sale with a 6% commission is calculated at closing, including brokers’ fees:
The commission for a $300,000 house at 6% amounts to $18,000. The listing and buyer’s broker split the $18,000 commission ($18,000 ÷ 2) between themselves into 50/50 proportions, each taking $9,000.
An agent and a broker may agree on any split between 60% and 40% commission, but the division may be 50/50, 60/40, 70/30, or whatever the parties agree. More experienced and top-performing agents often receive a more significant commission percentage.
In this example, the brokers split the commission ($9,000) between agents in a 60/40 ratio. In a 60/40 split, each agent receives $5,400 ($9,000 x 0.6). Each broker keeps $3,600 ($9,000 x 0.4).
The final commission breakdown would be:
- Total commission: $18,000 (6% of $300,000)
- Listing agent: $5,400
- Listing broker: $3,600
- Buyer’s agent: $5,400
- Buyer’s agent’s broker: $3,600
This is how real estate agents and brokers receive commissions. You can also find out how much a real estate investor makes in our guide.
Commissions when the sale doesn’t close
The buyer may have to pay a broker’s commission whether or not the transaction closes, but commissions are usually only paid if the transaction closes. However, in certain instances, the seller must deliver the broker’s commission even if the sale does not occur—and this is usually detailed in the listing agreement. This happens rarely, but it might appear.
For example, if a broker has an offer from a buyer who is ready and able to purchase, but the seller refuses, the broker may still collect a commission. The seller may refuse to complete the transaction by doing any of the following:
- Change their mind and refuse to sell a property
- Has a spouse who refuses to sign the deed (if the spouse signed the listing agreement)
- Has an uncorrected title Has committed fraud related to the transaction
- Is unable to deliver possession of the property to the buyer within a reasonable time
- Insists on terms that are not in the listing agreement
- Mutually agrees to cancel the sale with the buyer
Note: It is not always necessary that the brokers and agents receive a commission in the case of incomplete transactions.
Factors affecting real estate income
Because most real estate agents earn money after completing the sale of a home, their commission depends on how many homes they sell. Most real estate agents receive payment through a listing agreement signed by the seller and listing agent.
Real estate agents must consider several factors when forecasting their annual income as small business owners. All these factors directly affect your question, “How much do real estate agents make?”.
1. Number of completed home sales
Real estate agents receive commission-based income when they sell a home. Agents must close the deal and sell more homes to receive commission-based payment. Most agents sell between four and six homes a year. So, the more houses they sell, the more they earn is the answer to your question, “How much do real estate agents make?”
2. Years of experience
Creating a business takes a lot of effort, and developing an agent’s client base is no exception. Agents who have been in the real estate industry for decades have gained invaluable wisdom of the market and years of experience, leading to successful habits.
Every sale will give you the knowledge of which techniques are most effective and how to handle various situations.
3. Professional network connections
How much do real estate agents make depends on the number of professional connections they have.
Having an extensive network of professional contacts and former clients will give real estate agents a vast network benefit.
Word of mouth is among the most advantageous ways to gain clients, and it does not cost the agent anything. Working to improve connections with fellow real estate professionals, new agents, and those less active in networking will help keep their enterprises thriving.
New agents or those less involved in networking will have fewer connections, which means fewer opportunities for new business.
4. Business Costs
Another factor affecting your question, “How much do real estate agents make” is the business costs incurred in completing a real estate transaction.
Real estate agents generally rely on organic marketing through word of mouth. Still, they often need to spend money on digital advertising, billboards, park bench advertisements, and continuing education. Costs involved in starting a business include internet and cellphone bills, office supplies, fuel, and client meals.
5. Brokerage fees
Since real estate agents cannot work independently and must work for a brokerage firm, all transactions and commissions go to the broker, who divides the commission with all agents involved in the sale.
An agent usually receives 60% of the commission while the broker gets 40%, but other agreements are also standard. For example, the split might be 50/50, 70/30, or some different ratio. Some brokerage firms might also impose a marketing fee.
6. Area of Opportunity
Working in a large metropolitan area such as New York City or Los Angeles, an agent can earn more than someone who works in a smaller or rural location.
Suppose an agent lists a home in an expensive neighborhood where the average listing price is $500,000 instead of $200,000(the average listing price of a smaller location). Because of the higher cost of living, agents working in big cities are more likely to make higher commissions.
All the above factors directly influence how much do real estate agents make. If you want to start a real estate business, these factors might assist you in calculating costs.
How much do top real estate agents make?
Real estate firms have different standards for their top producers, but you can assume that anyone who sells a home every month qualifies. According to the BLS, top producers make $112,610 annually to start. The mega-stars can make $500,000 or more annually.
The dollar volume of the higher-end producers, who usually are listing agents, can give you an accurate estimate of how much do real estate agents make. You can assume that an individual who says they sell $50 million yearly makes at least one million dollars in commissions and probably more.
Some agents have teamed up and employed other agents to work for them. Although not always the case, the leader usually receives credit for every sale their team makes in that arrangement, even if a team member initiates the transaction. Team leaders are usually listing agents.
Most real estate brokers make a living by collecting commissions when they complete the transactions. The commission is typically divided between the listing agent, the listing broker, the buyer’s agent, and the buyer’s broker. However, the agent’s commission depends on their agreement with their sponsor.
Hopefully, this article on “How much do real estate agents make?” answers all your queries.
How to become a real estate agent?
The process for becoming a real estate agent varies by state. In general, you must take classes to prepare for your licensing exam. Then you will take the exam. If you pass, you will need to finish any other steps required to get your license, including a background check.
To earn more income, you can also become a real estate investor and take advantage of jobs available in real estate investment trusts.
What is a fair commission for a real estate agent?
The commission amount typically ranges from 5% to 6% of the house’s value. It varies by region and by real estate agent. Buyers usually do not pay the commission when purchasing a house. Home sellers typically pay this. However, this is not a rule, and both parties involved could change it.
When are real estate agents paid?
Brokers and agents split the commissions for real estate transactions directly from the sale proceeds at closing.
Do real estate agents get a base salary?
Some agents, including those employed by Redfin, are paid a base salary plus incentives. However, the majority of agents are paid exclusively on commission.
Do real estate agents get paid weekly?
Real estate agents do not receive any income weekly or even biweekly. In place of compensation, they work without pay in anticipation of receiving commissions on their sales. These commissions are split between brokers and agents at the closing.