How Much Does a Typical Real Estate Agent Make?
At some point in their lives, most people will have enlisted the help of a real estate agent to buy or sell their home. Because of the many steps to complete a real estate transaction, licensed agents are valued members in the field. In this article, we discuss how much money real estate agents make and how they earn it, plus provide tips for pursuing a career as a real estate agent.
How much do real estate agents make?
The average annual salary for a real estate agent in the United States is $94,031. Per month, they earn $6,658, on average. For the most up-to-date salary information from Indeed, click on the link provided.
Real estate agents receive income through commissions paid directly to brokers upon successful completion of home sales. The typical commission is 5% to 6% of the home's listing price, though this number can sometimes vary from 1% to 10% depending on the specific agreement.
Related: Learn About Being a Real Estate Agent
How do real estate agents earn money?
Because the majority of real estate agents earn money after completing the sale of a home, their commission is dependent upon how many homes they sell. Most real estate agents receive payment through a listing agreement signed by the seller and listing agent.
A real estate agent’s success largely depends on their effort, but as small business owners, they also need to account for some variables when forecasting their potential income for the year:
1. Number of completed home sales
The more homes real estate agents sell, the more money they make. Commission-based income is dependent on the completion of a sale, which makes closing the deal an essential step to earning income as an agent. Most agents sell between four to six homes a year.
2. Years of real estate agent experience
It takes a lot of time and dedication to build up a business, and working to expand an agent's clientele is no different. Agents with decades of experience have gained valuable insight into the real estate market, as well as years of knowledge leading to successful habits. With every sale, you’ll learn which techniques work best and how to handle different situations.
3. Professional network connections
Real estate agents with a wide network of professional contacts and past clients will continue to benefit from those connections. Word of mouth can be one of the most valuable ways to receive business and doesn't cost the agent anything.
Agents who work to create positive and meaningful interactions with their contacts in the real estate world will keep their businesses moving forward. New agents or those less active in networking will have fewer connections and therefore less opportunity for new business.
Related: The Complete Guide To Networking
4. Business costs
In addition to organic marketing through word of mouth, real estate agents often need to spend money to advertise their services or on continued education. Examples of these expenses include digital advertising, billboards and park bench advertisements and business expenses like internet and cellphone bills, office supplies, fuel and meals with clients.
5. Brokerage fees
Because real estate agents cannot work independently and must work under a brokerage firm, all transactions and commissions get paid directly to the broker who splits the commission with all agents involved in the sale. A typical split in commission will pay the agent 60% while the broker receives 40%. Of course, other agreements may include ratios of 50/50, 70/30 and so on. Some brokerage firms may impose a marketing fee, as well.
6. Area of opportunity
Agents working in large metropolitan areas like New York City and Los Angeles have the opportunity to make more than those who work in smaller or more rural locations. For instance, if a real estate agent lists a home in an expensive neighborhood where the average listing price is $500,000 as opposed to $200,000, the agent can plan on making a higher commission off that sale. Of course, a higher cost of living often comes with living in bustling areas.
Related: Best Cities for Jobs Around the Country
Example real estate commission earnings
Listing agents often work with a buyer's agent or an agent who helps the buyer find a home. This means that at the end of the transaction, the listing agent and buyer's agent split the total commission of the sale. When factoring in the brokers' fees, the total amount decreases. Here’s an example of how a $300,000 home sale with a 6% commission breaks down at closing:
A $300,000 home sold with a 6% commission rate amounts to $18,000. The listing broker and buyer's agent broker each took $9,000 (or half). The brokers then split the $9,000 with the agents at a 60/40 ratio. The listing agent and buyer's agent each took $5,400 ($9,000 x 0.6). Each broker keeps $3,600.
There are many scenarios where the final details of a transaction differ. For instance, there may be other parties involved in the sales process who take a cut of the profit or the listing agent may also act as the buyer's agent, which means they take home more profit.
Read more: How Is a Real Estate Agent's Commission Split With a Broker?
How to earn more money as a real estate agent
Because being a real estate agent is like owning a small business, it's important to make smart choices that generate a lucrative income. Here are some additional ways to earn more as an agent:
Do short sales
Many homeowners have issues selling their homes because they receive offers that aren’t enough to pay off the bank loan. Listing agents can work with homeowners to negotiate with the bank to take a lesser amount. Once an amount becomes accepted, the agent will relist the property as a short sale. This can take weeks or months to get a decision from the bank as the agent works to complete the legal steps of a short sale process.
Related: Listing Agent vs. Buying Agent: What's the Difference?
Work as a Broker Price Opinion (BPO) maker
Completing additional paperwork like the BPO report is another way for licensed agents to make money. This report, prepared by licensed appraisers to value homes, compares several home prices with relevant statistics and other information for sellers.
Related: Average Real Estate Appraiser Salary at Each License Level
Become a property manager
Oftentimes landlords cannot stay on top of the administrative duties that come with owning a property and decide to hire property managers. Real estate agents can earn additional income by managing these properties for them. This can involve performing maintenance on buildings and collecting rent.
Read more: Learn About Being a Property Manager
Sell commercial real estate
Being a commercial real estate agent can prove to be more beneficial financially due to the consistent monthly income that comes from a lease. Leasing is essentially renting, which means you’ll continue to get paid on a consistent basis instead of solely on commission. Do the research necessary to understand the commercial sector before reaching out to potential clients, and update your website and business cards to advertise your specialization.
Related: Commercial vs. Residential Real Estate Careers: A Guide
Become a Realtor
A Realtor is a licensed real estate agent who adheres to a high standard of ethics and may improve your credibility and networking within your market, which can help you earn more sales. Talk to other Realtors for insight into the benefits of joining a local chapter of the National Association of Realtors.
Related: 18 Jobs You Can Do With a Real Estate License
Become a broker
Brokers have many advantages over individual real estate agents. For instance, they manage the agents associated with their firm and earn a percentage of agents' commissions in addition to other administrative fees. The national average salary for a broker is $70,215 per year plus $42,000 commission. For the most up-to-date salary information, click on the link provided.
Broker requirements vary by state, so it's important to research what you'll need to do in order to obtain your real estate broker license.
Related: 16 Real Estate Jobs With Top Salaries
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