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How Much Do Real Estate Agents Make?
After choosing between real estate agent vs broker, the next thing many real estate entrepreneurs want to know is, how much do real estate agents make? The answer is not an easy one to come up with. It really depends on a number of factors including the location, real estate agent commission rates, and other things like experience and hours worked.
As a new real estate licensee, or if you want to become a real estate agent, understanding real estate commission is crucial. This article will break introduce you to five steps you can use in answering this question.
What is a real estate commission for a listing agent?
Real estate commissions are the fee a realtor earns for bringing in a successful sale. The formula for calculating how much does an agent makes based on their house sales and total hours worked can be complex. But it’s worth understanding how to calculate your earnings when negotiating with clients or prospective employers. It will help you get what you deserve. To understand how much does a real estate agent make, you need to know that it varies depending on the state you are based. In general, agents earn about six percent of the home price if they sell homes at an average commission rate.
5 things to consider when calculating what real estate agents earn
Although some brokerage firms are embracing a salary-based approach, you will probably be paid in commission. The following are five key steps to include in calculating a real estate agent commission.
Negotiation of commission splits
All real estate agents know that the commission is a percentage of the sales price, but what they don’t always know how to calculate is their earnings. It’s worth understanding how you can calculate real estate agent commission when negotiating with clients or prospective employers.
The formula for calculating an agent’s earning based on home sales and total hours worked can be complex. It helps if negotiate a fair split between seller and buyer before you start working together so both parties understand how much each will earn from any successful sale.
Say an agent retains a listing on a $200,000 home commissioned at the rate of 6%. This comes to $12,000 in total commission. If the property goes for the asking price, both the listing broker and the buyer’s agent’s broker share the commission in half. This can be $6,000 each ($200,000 sales price x 0.06 commission ÷ 2). The brokers then split the earnings with their agents.
Buyers and sellers – sharing the roles
Seller pays the commission to the listing agent as a percentage of their sales price. This differs from how buyers are typically charged, and is generally in accordance with local real estate association guidelines. The seller will also pay for any out-of-pocket expenses incurred by the buyer’s agent on behalf of them during showings or negotiations (for example, gas money). The broker may get involved if there’s an issue between buyer and seller that needs adjudication; this can be done through arbitration.
It doesn’t matter what type of property you’re selling — whether it’s residential properties, condos, or commercial buildings — all agents work under the same basic agreement: sellers “list” their property while an “agent” seeks out the best offer.
As an agent, you are responsible for finding potential buyers and presenting them with a list of properties that match their criteria. The listing agreement dictates how much the seller is going to pay in commission to your agency as well as any other expenses such as advertising or marketing costs incurred by the real estate broker but not reimbursed by clients.
Your fee will vary depending on what type of property it is (residential, commercial) and where you work. It also depends on whether or not there’s more than one buyer’s agent involved in “staging” negotiations between multiple parties interested in buying a particular piece of land; this can happen when someone sells off part or all of a parcel they own.
Using trends to estimate average real estate agent commission
One way to estimate the average real estate commission is by looking at how much money each agent makes. The National Association of REALTORS (NAR) publishes an annual compensation survey that provides information on this topic broken down into different regions and categories, such as “sales agents.” A recent report found that in 2015 the median salary for all retail salespersons across industries was $27,410 per annum ($13.72 per hour). However, keep in mind that your income may vary depending on where you work: “In Washington [state], which has a high cost of living, salaries averaged about $61,000,” according to NAR’s 2017 Pacific Northwest Economic Region Compensation Report. You might also want to check out Local MLS, which publishes a Salary Survey annually.
The median salary for sales agents nationwide is $50,000 per annum ($25 per hour), according to the U.S Bureau of Labor Statistics (BLS). The BLS also estimates that in 2020 there will be about 230,600 real estate brokers and agents with jobs out of an expected workforce of 115 million people aged 16 or older.
Another way to find how much you can make as a real estate agent is by looking at your commission split: “A listing agreement doesn’t specify what percentage goes to the buyer’s agent but typically it ranges from 25% – 35%. Some agreements require 50%, while others give 100% commissions when both parties are represented,” says NAR Executive Vice President Dan Drummond.
The average real estate agent salary is between $50,000 and $60,000 per year (inclusive of bonuses). This isn’t a high-paying job but it offers an interesting lifestyle with the freedom to work while you’re home without breaking your back for pennies.
Average salaries vary depending on how much commission each broker receives as well as what type of agents they are employed by: independent contractors vs brokers or franchises. Commission rates differ from company to company so be sure to ask before accepting any offer.
Commission based on real estate agent’s experience
Realtors with 16 years of experience and above earn about 30% commission, which is the average percentage for real estate agents. Realtors with four years of experience and above earn about twenty-five percent commission on the sales price. Most real estate agents stated have shown optimism in their increasing commission. For instance, those who earned a certain figure in 2018 earned more in 2019.
Some agents who work for an independent company earn about twenty percent commission when you sell your home and ten to fifteen percent of the sales price if they are a buyer’s agent. The commissions depend on how much effort is put into the sale by the agent as well as what type of real estate agency agreement it has with its employer; whether it be a broker or franchise.
Calculating real estate commission based on sales price
Real estate commissions are calculated based on the sales price and how much effort is put into the sale by an agent as well as the value of the property sold. For example, if you earn a twenty-five percent commission on a home that sold for $400,000 then you’ll receive $100,000 in compensation. The amount of compensation can vary because it depends on how hard your realtor worked to sell the property or what type of agreement they have with their employer; either being a broker or franchise.
In order to calculate how much money there would be after taxes from this figure: ($100,000) x (30%) = ($30,000). After subtracting federal income tax at 12%=$1296), state tax rate which varies depending on where the real estate is located at (let’s say it’s NY and the state tax rate is 12%)=$1452), as well as Social Security Tax of 15%($15,600)
This means that after taxes you’ll be left with $6519 on a commission-based compensation. This is assuming that there are no other expenses for the real estate agent, which may include office rent, computer costs, furniture, and supplies. In this case, the real estate agent might be left with $5000 a year.
This figure is only for commission-based compensation and not including any other expenses or earning potentials from the sale of properties. It also doesn’t take into account how much money they would get if they were self-employed as opposed to an employee working on commission. The more experience a broker has, typically the higher their salary will be because brokers can charge clients more based upon what type of deals they close (i.e., sales prices). These numbers are averages for all types of commissions in America:
- $50,000 – the average annual salary for a real estate broker who makes between 45 and 50 transactions per year.
– this is on the higher end of the spectrum as they are closing more deals than most brokers would be able to close in their first few years in business.
- Under $25,000 – an agent that only closes one transaction every ten months; meaning they work nine months out of each year without any commission fees or bonuses from completing sales.
–this is typically what agents make when starting out in their career and have little experience with how much money they’re actually is available within the real estate market. Their earnings will increase once they start accumulating enough knowledge about how to negotiate contracts successfully.
- This can come from the commission or bonuses for each sale but if not this level of income will be difficult to sustain as a full-time job and it may lead to other side work like being a salesperson on weekends in order to make up some difference.
Agents at this stage typically have been in business for less than four years and earn between $40,000 and $60,000 annually with their main focus still being building relationships rather than taking care of themselves financially. While they don’t have much experience yet they do know how real estate companies operate which means more opportunities might come their way.
As the years go by they will start to see more and more opportunity as well as responsibility for themselves like coming up with plans on how to make money in order to better oneself, investing in some side work that may have a higher return rate than commission such as residential property flipping or home staging. The main focus of this stage is self-improvement financially because now it’s possible for real estate agents at this stage who are successful enough can earn six-digit incomes from commissions alone.
Earning more through real estate agent education
Real estate agents that have a college degree and continue to learn in the industry are more likely to earn more. A real estate agent can take on better clients because they know what’s going on with their finances and how much money is at stake in their professional career. It also allows them to ask for higher commissions from sellers as well as buyers which means more potential profit for themselves when it comes time to settle the sale of property or home.
One can earn a specialist designation for marketing luxury homes, for instance, or become a real estate broker. Either way, the more knowledge you gain in this industry by taking courses and real estate exams and continuing to learn new things on your own time outside of work hours can help you earn more money as well.
Some agents who have been at it for decades come out with six-digit incomes because they know how much is owed even before they take into account all of their commissions from sales. They also keep their clientele happy which means that sellers will be coming back again and again.
Other factors that affect real estate agent’s commission
One thing that is certain about real estate commissions is the more work you put in, the higher your commission will be. It’s also important to keep track of how much money a client owes so they can calculate their net profit. It may seem like something simple at first but it does make an impact on one’s earnings after factoring in all the time and effort invested into each sale transaction.
It’s important to know how much a real estate agent makes but it’s also just as crucial for them to keep track of their total commissions. The first thing you will need is your sales price which should be the amount that was agreed upon between the seller and buyer in an agreement. It can help agents see how much they are going to make on each sale before taking into account all of their other costs like marketing, maintenance, taxes, or utilities.
Agents who work with buyers have another set commission called “buyers’ agent” which would only apply if there is one involved in the transaction at all. Sellers pay this fee instead of sellers’ agents getting paid by themselves from what the house sells for so it ends up being free money for the agent.
Agents who work with sellers will get paid for what they sell a home for and this is called a “listing agreement”. The amount of money that agents are able to make on each sale can vary greatly depending on how much has been agreed upon between buyer and seller, or in listing agreements. Agents have other ways to earn income as well like getting referral fees if a client sells their house through another real estate broker which means two brokers were used instead of just one.
Also depends on where one works. An agent in New Hampshire for instance will earn differently from another region. You can search and find related commission areas, but there may not be many.
How much do real estate agents make – Summary
When considering a career in real estate, one of the first questions you may have is how much do real estate agents earn? While there are many factors that go into determining your salary as an agent (such as location and years of experience), we’ve provided some averages to give you a ballpark idea. For instance, say an agent takes a listing on a $200,000 house with a 6% commission. This equals a total commission of 12,000. If the house sells for ask price – both the listing broker and buyer’s agent’s brokers get half of the commission, or 6000 each ($200,000 sale price x .06 commission divided by two). The brokers then split that commission amongst themselves usually 50/50, which equals 3000 each. If this has piqued your interest and you want more information on what it takes to become a realtor, please contact us for help finding out if this is the right career for you. One way or another, our team will be able to provide guidance towards figuring out which path is best suited for helping meet your goals.