How Much Do Real Estate Agents Make?
Real Estate Agents Are Not Likely to Be Rich
If you have ever wanted to peek at your real estate agent's tax return to find how much your agent earns a year, you're not alone. However, not all real estate agents earn the same amount of money. For starters, real estate agents enter the profession from all walks of life with varying levels of education and motivation. Some become a real estate agent for the money, while others are attracted to the glamour, excitement, and challenges of selling property.
Others want to be part of a profession that helps others to accomplish dreams. 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?
Whatever the reason for becoming a real estate agent, the fact remains that most first-year real estate agents earn very little at first, 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. They learn other ways to attract clients.
On average, according to Payscale.com, real estate agents earn $46,931. Top producing agents make a lot more, and agents who sell one home every few months earn less. More experienced agents tend to earn more. The breakout below shows averages at different levels of experience.
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.
Agents who are just starting out typically receive a low commission split while they learn the business. It is not unusual for a first-year agent to receive about 50 percent of the commission paid to the 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 broker then shares part of that commission with the brokerage that represents the buyer. All real estate commissions are negotiable, but agents set their own rates with fees 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 but it is also based on local custom.
When I started in real estate some 40 years ago, the fee paid to the selling side was often split, but today, where I sell in northern California it is more lopsided, with the listing broker receiving up to 1 percent or more than the selling broker. In San Diego, it seems more common to split the commission evenly.
A listing commission can vary from a flat fee to a percentage of 1 percent to 10 percent or more of the sales price. Let's look at an example of how much a listing agent earns if the commission paid is, let's say 7 percent, with a 50 percent split (for ease of computation only) with the brokerage who produces the buyer.
Say, the sales price is $200,000. The total commission at 7 percent 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 percent for a first-year agent.
This means at 60 percent split, the agent would gross $4,200. After deducting federal and state taxes, which could amount to 30 percent or more, the agent would net about $2,940. The agent also pays overhead and expenses, which could eat up another 20 percent 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 percent of the agents do 80 percent of the business. In the example above, an agent who comprises part of the 80 percent category (that wins 20 percent of the business) would gross about $18,000 a year. Agents don't generally go into the business wanting to be part of that 80 percent, but that's often the stark reality.
How Much Do Top Producer Real Estate Agents Earn?
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. Top Producers make around $100,000 a year to start. Mega-stars earn $500,000 per year and up.
In a place like Los Angeles, for example, the Rock Star agents can sell $500 million, which means they earn personally many millions annually.
You can look at the dollar volume of a top producer, most of whom incidentally are listing agents, and you can pretty much figure out how much they earn a year. If a top producer tells you she sells $50 million a year, it's an educated guess that she earns at least a million in commissions and probably well over that.
Some agents have formed teams and hire other agents to work for the team. Often, but not always, 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, or at least that's the goal.
At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.