How Much Do Real Estate Agents Make?
How much does a Real Estate agent make? It’s a question that gets asked a lot. Not only do potential agents thinking about entering the industry ask it, but consumers as well.
There is no secret that real estate is a highly lucrative industry. However, what many people don’t realize it is the upper echelon of Realtors that are raking in the big bucks.
The average real estate agent is not pulling in earnings that would make you gasp. In fact, far from it.
Unlike other industries where employees are paid a salary, Realtors are paid commissions. Real Estate agents are considered independent contractors.
A real estate agent will not get paid until the transaction is complete and the deed is recorded. In other words, agents are compensated strictly on a performance basis.
What Factors Determine How Much a Real Estate Agent Makes
Real estate agents’ money earned each year depends on a few factors, including the number of transactions completed, the commissions brought in, and the split with the broker they work for.
A Realtor can work with a seller or buyer for months without a sale. They are not paid for any of this time. A Realtor’s commission will be based on the sale price of the home. They will only receive their commission when the job is complete.
Please note: a Realtor and a real estate agent are not the same things. A Realtor is a member of the National Association of Realtors. Real Estate agents are not. However, for the purposes of this article, I’ll be using the words interchangeably.
It would not be surprising if Realtors made more income than real estate agents. Some of the best agents I know are also Realtors. Realtors are bound by a code of ethics and put their client’s best interests first.
Many wonder what does a real estate agent do to earn their money. Have a look; it may surprise you.
Let’s take a closer look at commissions in real estate sales.
How Much Commission Does a Realtor Make?
How much do Real Estate agents make on a sale? That really comes down to the commission charged in the transaction. The average real estate commission around the country comes in at around 5.5%.
Commissions are entirely negotiable between the seller and the real estate brokerage. Real Estate commissions are not fixed due to the Sherman Antitrust Act. Fixing Realtor commissions is illegal.
Sometimes the listing agent is empowered to negotiate the commission, and others are not. It depends on the real estate company they work for.
So how much does a Realtor make? It boils down to the sales price for the property. Using a sales price of $500,000 with a commission of 5 percent, the total commission would be $25,000.
Most of the time, the commission is split equally between the listing and selling agencies. However, it could be different. For example, the listing agent could decide to take more or less than an equal split.
Sometimes to entice a seller to list with them, a listing agent could reduce the commission. For example, instead of charging 5 percent, they charge 4.5%. However, the listing agent still gives the buyer’s agent 2.5% and takes a reduced fee of 2 percent.
Many intelligent listing agents will not discount the buyer agent commission because they want to be competitive in the real estate market. If most of the other homes in the marketplace have a higher commission rate, it is not a good business practice to lower the fee.
How Much Do Real Estate Agents Make Per Sale?
Let’s have a look at what a real estate agent makes per sale. Here is an example of a typical commission schedule. We will use 5 percent commission split equally for purposes of discussion.
In this scenario, the listing agency would get 2.5%, and the selling agency would get 2.5%. Each company would then split the 2.5 commission with their respective agents.
Assuming for a moment that each agent is splitting the commission with the brokerage, the listing agent would get 1.25%, and the buyer’s agent would get 1.25%.
Using a home selling at $500,000, the listing agent and buyer’s agent would each gross $6250. Keep in mind this is before any expenses. You then have to figure out the taxes paid to the government.
What a real estate agent makes on a house sale is much less than you think when all is said and done.
It is vital to understand that commissions are typically split four ways between the listing agent, their broker, the buyer’s agent, and the buyer’s agent’s broker.
The gross income and net income are very different.
How Do Realtors Get Paid Their Commission?
Realtors get paid their commission by the owner of the company they work for or the broker of record. Commission checks are paid at closing and made out to the listing real estate company and the buyer’s agent’s company.
The individual agents are then paid by their respective brokerages.
There are commission splits that vary from company to company. When a real estate agent starts out, they will often split the real estate commission with the company’s owner.
As they progress and produce more sales, their split with the house will often increase. Usually, there are tiers of production whereby an agent’s split will go up incrementally.
For example, if they hit a certain amount of gross commission, their split will increase to 60/40. There can be multiple levels of production, which typically get capped anywhere from 80/20 or a 90/10 split with the house.
RE/MAX Works Differently Than Traditional Real Estate Companies
As you become more successful as an agent, you will earn a higher commission split. Some real estate companies, like RE/MAX, work differently.
In the RE/MAX system, the listing agent keeps 95% of the commission and gives the brokerage 5%. However, unlike a traditional real estate company, the agent takes care of all the overhead for running the business.
The owner of a RE/MAX firm makes most of their money by charging agents monthly rent. It is a system that is built for top-producing real estate agents. Top producers come to RE/MAX when they are not worried about where their next sale is coming from. RE/MAX agents typically have many years of experience.
New agents rarely join RE/MAX because you are like a self-employed individual paying all your own expenses. It is the complete opposite of traditional agencies.
So how much does a Realtor make on a sale? It will vary from company to company, and the split is with the company the agent works for.
How Fast Do Real Estate Agents Get Paid?
One of the downsides of the real estate industry is agents don’t get paid right away. The average time to closing is 45 to 60 days. Some real estate closing dates are much longer than that.
The vast majority of all real estate agents do not get paid a salary, so they can go quite a while from paycheck to paycheck if they are not producing sales.
When a sale does close, real estate agents are usually paid within a few days by their brokerage.
How Much Do Real Estate Agents Make?
So this leads back to the original question of how much Real Estate agents make. The answer is it depends. The range goes all the way from a poverty level income up to some of the best-paid individuals in the US.
Some of the top real estate agents in the industry can earn six and even seven-figure commissions. According to the employment website Indeed, the average yearly commission for a Realtor right now is $95,602. These earnings are up substantially from years past.
Keep in mind that home values have skyrocketed over the last few years. Commissions are paid based on the sales price of a house. That means more money in every real estate agent’s pocket.
So far, for 2022, Indeed has the annual pay for what a real estate agent makes in the range of $85,597-$112,309, depending on their time in the business.
According to the most recent stats available from the U.S. Bureau of Labor Statistics, the median annual earnings were $48,770. For real estate brokers, the mean earnings were $86,490.
The best real estate agents and brokers can earn much more. The upper ten percent in the industry earned over $102,000. The top ten percent of brokers made over $176,000. Successful agents can certainly make a better than average income.
You can see a breakdown of what real estate brokers make in commission in all fifty states.
How Much Do Real Estate Agents Make By State?
What a real estate agent makes can vary tremendously by location. For example, what real estate agents make in Massachusetts could be very different than an agent in Florida, Michigan, or Nevada.
One vital factor that makes this the case is home values. The average sales prices of homes are different all around the country. A Realtor’s commission on a similar home in one place will be dissimilar to another.
What is surprising is that Massachusetts comes in at #2, and California is down at #7. I would have expected California to be at the top of the leader board for how much real estate agents get paid.
Here are a few states with their respective average real estate agent commission earnings. Have a look at the resource for the complete list.
- Massachusetts average real estate agent yearly commission = $84,170
- New York average real estate agent yearly commission = $111,800
- California average real estate agent yearly commission = $74,140
- Florida average average real estate agent yearly commission = $62,790
- New Hampshire average real estate agent yearly commission = $49,970
- Texas average real estate agent yearly commission = $72,830
- Michigan average real estate agent yearly commission = $57,170
As you can see, there is a decent swing from state to state on how much commission a real estate agent makes per year.
The top ten states for real estate agent commissions are mostly in the Northeast and out West.
What Does a Real Estate Agent Make in The First Year?
Of course, what a Realtor makes in the first year will vary from agent to agent. Zip Recruiter has put together some stats on what first-year agents make. Frankly, the information does not look that accurate to me.
They have first-year agents making as much or more on average than those who have been in the business, as shown above. It doesn’t make sense. Take the info with a grain of salt because it’s probably off. It would be interesting to know the methodology used, but it is not provided.
Zip Recruiter says, “ZipRecruiter salary estimates, histograms, trends and comparisons are derived from both employer job postings and third-party data sources.”
Some licensed agents get in and make very little, if any, money in the first year.
What Are Flat Fee Real Estate Companies?
There is one situation where traditional real estate commissions are not paid. It’s called flat fee. A flat fee brokerage firm adds a home sellers property into the multiple listing service.
A home seller does not pay the traditional commission fees but a fixed amount which is usually a few hundred dollars. The owner receives minimal help in the real estate transaction. Instead of paying a full commission the seller does all the work themselves.
It is essentially a DIY service where an owner pays lower commissions. Since there is no traditional listing broker, the owner saves in the transaction. Sellers going this route should pay a buyer’s agent otherwise they are unlikely to have success.
Keep in mind successful real estate agents do not work for these firms. It is usually a one person brokerage.
What A Real Estate Agent Does to Earn Their Commission
Real Estate professionals take on a myriad of tasks to earn their commission. What a buyer’s agent and seller’s agent does will be different. See the difference between a listing agent and selling agent for a complete understanding.
A top real estate agent will go above and beyond to make their clients happy. They will be strong advocates for their needs. A fiduciary that will put their clients interests first. They will explain the downsides of things like dual agency and open houses.
Putting their own self interests first will not be part of their business.
How to Become a Real Estate Agent?
In order to become an agent you need to get a real estate license. You need to take required course curriculum and then pass a real estate exam to get your license. New real estate agents need to understand there will be a period of time they are not making any money.
How much money an agent makes will be tied to numerous factors. New agents should never assume they are going to get rich quick in this business. It takes hard work and long hours of dedication.
Part-time agents rarely do well. It is a career that takes a full time commitment. You need to be ready to accommodate a clients time constraints which is difficult when you’re part time. Telling them you’re not available because you have a second job as a bartender is unlikely going to cut it.
A real estate career is something that should be taken seriously as you will be handling a buyers and sellers largest asset. Once you sign that listing agreement or offer to purchase, there will be great responsibilities.
Final Thoughts on Real Estate Agent Income
Having been a Realtor for the past thirty-five years, I know real estate can be a lucrative career. I’ve been lucky enough to be one of the top earners in the industry. Without passion and dedication it never would have been possible.
If you think it’s going to be easy, you’re kidding yourself. Market conditions can play a significant role in an agent’s development and ultimately their income. Whether it is a buyer’s market or a seller’s market can impact commissions, among a number of factors.
Put your mind to it and you can be one of the best of the best.
About the author: Bill Gassett, a nationally recognized leader in his field, provided the above Real Estate information on how much a real estate agent makes. Bill can be reached via email at [email protected] or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for 35+ years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
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How Much Do Real Estate Agents Make?
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How much do real estate agents make is a question that gets asked often. See a complete breakdown of earnings for Realtors and agents.
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Bill Gassett
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Maximum Real Estate Exposure
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