How Much Do Real Estate Agents Earn?
Real estate agents aren't likely to be rich...but some are
Not all real estate agents earn the same amount of money. Agents enter the profession from all walks of life, with varying levels of education and motivation, and this can influence income.
Some do it for the money, while others are attracted to the glamour, excitement, and challenges of selling a property. Others want to be part of a profession that helps others accomplish their dreams.
How Much Does the Average Real Estate Agent Earn?
Most first-year real estate agents earn very little, primarily because they're struggling to learn the business while they build a client base. They can rely on referrals from satisfied clients to continue building their business as years go by, and they learn other ways to attract clients.
As of Feb. 26, 2020, real estate agents in the U.S. earn an average salary of $42,183. It's important to note that their salaries can range and typically fall somewhere between $41,208 and $53,656.
Top real estate agents make a lot more. In fact, as of Feb. 26, 2020, those in the 90th percentile of the U.S. real estate industry earn a median salary of $64,101. And agents who sell one home every few months earn less. Those in the 10th percentile, for example, of U.S. real estate sales agents earn a median salary of $40,321.
How Real Estate Commissions Are Paid
How much agents earn depends on the number of transactions they complete, the commission that's 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's not unusual for a first-year agent to receive a part of the commission paid to the broker.
Apart from buyer broker agreements that allow for direct payment to a buyer's broker, most real estate agents are paid through a listing agreement 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.
It's typically the seller who designates how much the buyer's agents are paid, but it's also based on local custom.
A listing commission can vary from a flat fee to 1% up to 10%, or even more of the sales price.
Let's look at an example of how much a listing agent would earn if the commission paid was 7% with a 50% split with the brokerage who produces the buyer.
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.
The agent would gross $4,200 at a 60% split. The agent would net about $2,940 of that after deducting federal and state taxes, which could amount to 30% or more. The agent also pays overhead and expenses, which could eat up another 20% of the gross, resulting in a net income of just $2,352.
How Many Homes Do Agents Sell?
Ideally, a real estate agent would want to sell as many homes per year as they can to earn the best salary. However, in reality, they may only sell a handful per year—it all depends on their clients and the market.
The saying is that 20% of the agents do 80% of the business. Agents don't generally go into the business wanting to be part of the 80% that achieves only 20% of sales, but that's often the stark reality.
How Much Do Top Real Estate Agents Make?
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 safe to say that a top producer would have to sell at least one home a month to qualify. Top producers earn around $112,610 a year to start, according to the BLS. Mega-stars could earn $500,000 per year and up.
Rock star agents can sell $500 million a year in places like Los Angeles, which means they personally could earn millions annually.
You can look at the dollar volume of a top producer, most of whom 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 their teams. Often, but not always, the team leader earns credit for each sale in this type of arrangement, even if a team member originates the transaction. Most team leaders are strong listing agents.
Discount real estate brokers have to sell more property than traditional full-service brokerages to earn the same amount of money. What discount brokers sacrifice in service is made up by the quantity of transactions, or at least that's the goal.