If you’re considering starting a new career as a real estate agent, you’re probably wondering, “How much do real estate agents make?”
However, before you begin ordering business cards, you first need to consider a couple of factors.
For instance, being a real estate agent is a commission-based job, which means there is potential to make serious money. On the other hand, your success is a function of your efforts. In other words, you can’t show up and expect to get paid for doing nothing.
This article will explain how much real agents make and what other factors to consider. I’ll also cover the steps needed to become a real estate agent. Furthermore, I’ll share some insights from experienced REALTORS on why some agents fail and what advice they would give to have a successful real estate career.
Table of Contents
How Do Real Estate Agents Get Paid?
Real estate agents don’t receive a base salary. Instead, real estate agents earn money when they sell a real estate property, such as a house, and receive a commission for it. The commission is a percentage of the property’s purchase price, which the seller pays for. Thus, the buyer isn’t responsible for paying either the buyer’s agent or the seller’s agent.
On average, a real estate agent commission is five to six percent of the purchase price. However, some agents are willing to negotiate with clients and offer a discount. For example, an agent may represent both the buyer and seller or the agent has received repeated business from the client.
However, it’s essential to understand that the real estate commissions do not entirely go to the seller’s listing agent. Instead, the seller’s and buyer’s brokerages split the commission 50/50—afterward, the agent and broker divide it between themselves.
Those who share the commission:
- Seller’s broker
- Seller’s agent
- Buyer’s broker
- Buyer’s agent
The split between the agent and the broker varies, such as 50/50, 60/40, or 30/70. The agent’s years of service or production can positively affect how much of the split they receive. Therefore, it’s normal for a real estate agent just starting to receive a smaller cut.
For example, a listing agent helped their client sell their house for $300,000. For a 5% commission, the commission upon a sale is $15,000 ($300,000 x 5%). The seller’s and buyer’s brokerages split the commission between them. Therefore, each brokerage receives $7,500 ($15,000 / 2).
Afterward, the seller’s broker and seller’s agent agree amongst themselves to share their commission 50/50. Thus, each receive $3,750 ($7,500 / 2).
When Do Real Estate Agents Get Paid?
Real estate agents only get paid when a seller transfers their property ownership to the buyer. Real estate professionals refer to this transaction as closing. This closing day usually includes the lender, the title company, and the real estate agent.
Therefore, if the buyer and seller’s purchase agreement contained a contingency, such as a failed home inspection, the buyer has the right to walk away from the deal. In this case, the real estate agent will not get paid for their efforts.
Another example that can prevent closing on a property is when a lender does not approve a buyer for financing. Lenders hire a third-party to perform an independent appraisal of the property.
Lenders won’t finance a property if the purchase price exceeds the appraiser’s valuation. For this reason, sellers prefer accepting full cash offers, especially in bidding wars.
How Much Do Real Estate Agents Make?
The average real estate wage for real estate agents ranges from $42,000 to $49,000 annually, according to the following reports:
- The U.S. of Labor Statistics shows that the median annual wage for real estate agents is $48,930 (May 2019).
- Salary.com reported a lower median yearly salary of $42,821 (December 2020).
- The National Association of REALTORS (NAR) reported a gross median income earned from real estate activities of $49,700 (2019).
However, these figures don’t specify how many years of experience for the real estate agents. According to Salary.com, a real estate agent with more than ten years had a median annual wage of $47,166, which is $4,345 above the median.
Also, the NAR reported that a REALTOR with more than 16 years of experience had a median gross income of $71,000. This increase in gross income for a seasoned real agent can result from various things.
For example, a broker may be more willing to share a larger percentage of commission to reward a real estate agent’s experience. Furthermore, a seasoned agent has also built more relationships and connections over time, allowing them to produce more efficient results.
Below is a table showing the median annual income for different years of experience from Salary.com:
|Years of Experience||Median Annual Income|
|Less than two years||$42,304|
|3 to 4 years||$42,452|
|5 to 6 years||$42,599|
|7 to 9 years||$43,168|
|10 to 14 years||$47,166|
|More than 15 years||$49,426|
Although a real estate agent technically works for a brokerage, they operate like contractors or small business owners. Several expenses can chip away at their commission check. A broker may be willing to help their agent with costs, but ultimately it’s the agent’s responsibility.
A couple of out-of-pocket expenses are the following: brokerage fees, REALTOR membership fees, access to the Multiple Listing Service (MLS), and Error and Omissions Insurance. Additionally, real estate agents have to pay for their marketing, website, and any travel expenses.
Factors That Can Improve A Real Estate Agent’s Income
Real estate agents make money when a property sells. However, certain factors can help increase an agent’s income above the average salary.
Although a 6% commission rate is the average, some real estate agents charge a higher commission on the listing agreement due to their experience. However, more years of service doesn’t necessarily guarantee someone is the best real estate agent.
Agents that expand their clientele outside homeowners can also increase their take-home pay. Real estate agents can make a lot more money selling commercial real estate than residential real estate, mainly because commercial properties have a significantly greater purchase price.
A real estate sales agent can make more annually by generating more leads and selling more houses. Developing an efficient prospecting system usually comes with time, along with building connections with other agents.
A young real estate agent can achieve success and make good money. They have to hustle and put in the work like any good business owner.
How to Become a Real Estate Agent in 3 Steps
Step 1: Take Pre-Licensing Courses
Each state has different requirements to be a licensed real estate agent. For example, in California, a person must take three real estate classes for 165 hours. On the other hand, New York only requires 75 hours of salesperson qualifying education courses in real estate.
Therefore, it’s essential to research a state’s real estate licensing information. Being licensed in one state doesn’t permit an agent to practice in another.
Courses can be completed on-line or in person. But, make sure the classes are recognized and accepted by the state.
Step 2: Take Real Estate Salesperson Exam
Your course instructor should be your first resource in helping you apply for the real estate salesperson exam. Be sure to follow the application process to avoid delaying the exam.
It’s to your advantage to take the exam sooner rather than later while the information is still fresh in your mind. Most states require a background check, which can take weeks to finish. So, keep on studying!
Step 3: Join a Brokerage
Agents are not allowed to sell houses independently. Instead, agents must join a real estate brokerage, where a broker will oversee all the agent’s transactions.
Interview several brokerages to find the one that works best for you regarding assistance, guidelines, and commission. Real estate is all about relationships. So, it’s essential to have a good one with your broker.
Some agents prefer a brokerage associated with a known real estate brand. They believe that it can help market themselves.
However, the name of a brokerage doesn’t automatically provide success. Other successful and seasoned agents decide to become a real estate broker and start a new brokerage.
How To Be Successful in Real Estate
There is a misconception that being a real estate is an easy career. Although acquiring a real estate license is a straightforward process, new agents quit within five years.
I interviewed two seasoned real estate agents to get their opinion on what it takes to be successful. They have a combined 30+ years of experience in the real estate industry, helping people sell and buy a home.
Heeran Workman, an Associate Broker for eXp Realty, says about real estate agents, “They assume that once they get their license, everyone they know will automatically hire them for the job. Most fail because they don’t prospect for clients.”
Shawn Prouse, a REALTOR with Berkshire Hathaway, adds, “An agent doesn’t run their profession as a legitimate business and cuts corners or isn’t dedicate to the process, not fully committed.”
Furthermore, like any sales job, being a successful real estate agent is all about time management and creating a process to generate more leads. Prouse states, “If you fill [your time] with business generating activities, you will become successful.”
Workman adds, “A successful agent will most likely be a well-rounded person who has a great prospecting system to look for new clients…and continues to keep this funnel moving.”
What Else Can a Real Estate Agent Do With a License?
If you’re having difficulty as a real estate agent finding clients wanting to sell a house, there are other things you can do to leverage your license.
Become a REALTOR
A REALTOR is a licensed real estate agent who is a member of the National Association of REALTORS® (NAR). However, a licensed real estate agent is not necessary a REALTOR. The NAR holds REALTORS to a higher standard by adhering to the Code of Ethics & Standards of Practice.
Many real estate agents decide to become REALTORS. This title can build confidence with potential clients and help agents gain more business.
Start a Property Management Company
A majority of states require that a property manager be licensed. A property manager’s responsibilities include marketing properties for rent, calculate rent affordability for a tenant, and handle repairs.
Running a property management company is an excellent way to supplement their income. A manager’s fee ranges from 6% to 10% of the monthly rental income. A property manager that takes care of multiple rental properties can make a sizable income.
For example, a rental property with a monthly rental of $1,500 and a 10% property management fee would yield $150 a month ($1,500 x 10%). Imagine managing 20 properties with the same monthly rental income; That is $3,000 a month ($150 x 20).
Perform Broker Price Opinion (BPO) Work
A Broker Price Opinion (BPO) is a report created by a licensed real estate agent that estimates a property’s value, similar to an appraisal.
The difference between an appraisal and a BPO is that the appraisal must conform to the Uniform Standards of Professional Appraisal Practice(USPAP). Also, a BPO can be relatively less expensive compared to a formal appraisal.
Acquiring a real estate agent license or registering as a REALTOR is a straightforward process. However, what you do after you pass the examinations is ultimately up to you.
A real estate agent’s salary can vary, which shows that the level of effort can directly affect success. You’ll need a good understanding of real estate legal knowledge and personal skills to coordinate a closing. If you have excellent sales ability and market skills, you may fit well for a real estate career.
However, don’t spend your time chasing commission checks. Instead, always put your clients first. A satisfied client can lead to referrals, which can generate more real estate sales.
Real estate is all about relationships. Sellers want to choose a real estate agent that they can trust.
This article originally appeared on Your Money Geek and has been republished with permission.
Jonathan Sanchez is a real estate investor and personal finance blogger for Parent Portfolio. He owns a small real estate business that operates a couple of investment properties in his local market.