Real estate agent earnings vary widely based on numerous factors, including experience, location, and niche. Some agents struggle to get by while others earn a comfortable living.
However, some constants exist in how real estate agents work and get paid. For example, most real estate agents work on commission, which they earn at the end of a transaction.
If you’re looking to become an agent or are just curious about how much realtors make, here’s what you should know.
What Does the Average Real Estate Agent Make?
“Location, location, location” is real estate’s mantra, so it makes sense that the average annual income for a real estate agent varies from state to state, city to city.
Homes in major cities like New York, Los Angeles, and Chicago cost more than in rural areas. If you sell 10 houses in San Francisco, you’re likely making more than if you sold 10 comparably-sized homes in Mars Hill, North Carolina.
According to ZipRecruiter, Washington has the highest average real estate agent earnings at $104,032, while North Carolina’s real estate agents average the lowest at $65,393. In 33 out of 50 states, the average real estate agent makes more than $80,000.
But again, these earnings can vary substantially. There are numerous reasons why, but it comes down to commissions.
What is Real Estate Commission?
A commission is the percentage of a real estate transaction that goes to the buyer’s and seller’s agents. Instead of paying for a real estate agent upfront, commission rates are included in a home’s sale price.
For a long time, the standard commission rate was 6%. However, times are changing. Between the rise in discount brokers like Zillow, homeowners listing for-sale-by-owner (FSBO), and negotiable commissions, these rates are prone to fluctuation. The national average commission rate is 5.37%, which varies with every transaction.
How is Commission Split?
Usually, the listing agent and the buyer’s work agree to an even commission split. If the commission rate is 6%, both agents can expect to earn 3%. If it’s 5%, agent earnings would be 2.5% each.
Let’s assume you’re selling your home, and the commission is 5.5%, split evenly at 2.75% each. Here’s how much realtors make based on these commissions:
|Home Sale Price||Buyer’s Agent||Seller’s Agent|
When sellers begin working with a realtor, they sign a listing agreement. If the contract gives them the exclusive right to sell, the seller agrees to pay a commission even if they’re the ones that find a buyer for their home. The seller is also usually the one who pays the commissions for both agents.
When Do Real Estate Agents Get Paid?
Usually, real estate agents only get paid once their clients close the transaction. In other words, they’re not making anything while hosting open houses and marketing homes, showing buyers prospective properties, or during their many conversations with clients.
Sometimes you may have clients who try to sell their home for months to no avail or spend a year searching for a new home only to decide it’s not the right time for them. In these situations, the real estate agent needs to earn something. Conversely, you can have a client complete a real estate transaction in weeks and make a five-figure commission. It’s all situational.
There are also some instances when a realtor may get paid earlier. For example, if an offer gets accepted and no contingencies could cause the transaction to fall through, the realtor may get paid before closing. However, agents usually have to wait until the ink dries.
What About the Realtors Who Earn Base Pay?
As we mentioned, realtors almost always make money based on commission. However, there are some agents out there who earn a base salary plus a percentage of commission. For example, agents working at Redfin may get paid an hourly wage, plus a percentage of the commission.
These firms come with their pros and cons:
- Salary isn’t commission-dependent. When you’re just starting, it often takes months to earn your first commission. Until then, you’re paying for everything out of pocket, which can get expensive—especially if your transaction falls through.
- Peace of mind. Similar to above, instead of waiting to earn a commission, you earn a steady paycheck and will know exactly how much, at a minimum, you’ll make every couple of weeks.
- Reduced tax burden. When working with an employer, it’s their job to withhold taxes from your earnings. Commission-only agents often pay enormous lump sums every quarter or year based on how much they’ve made. If you need to track how much you’ll owe, you could be in trouble come tax season.
- You have a boss. Part of what makes an agent’s job so great is the freedom and flexibility that comes with it. Besides your clients, you answer to no one. If you’re earning a base salary, you’re responding to someone.
- It is not recommended for experienced agents. Base pay could be helpful for beginner agents, but the more years of experience an agent has, the more likely they are to earn a higher salary on their own.
- Many agents make less. This is worth repeating. If you’re on your own and conduct $5,000,000 in sales of the year at a 3% commission, you’ll earn $150,000 (before your broker’s cut and additional fees, which we’ll get to shortly). If you do the same while working somewhere with a base salary of $50,000 + 15% commission, you’ll earn $72,500 (($5,000,000 * 3% * 15%) + $50,000). That’s a substantial difference!
How Many Homes Does an Agent Sell in a Year?
According to the National Association of Realtors (NAR), the realtors were involved in a median of 12 residential real estate transactions in 2021 (either at the buyer’s or seller’s agent).
The median home sales price in 2021 was $346,900. In other words, if you were a realtor in 2021 and was involved in 12 transactions at $346,900 each and earned a commission of 2.685% (your half of the average national commission: 5.37%), you would’ve made:
$346,900 * 12 * 0.02685 = $111,771.18
That’s a great income!
Additional Cost Considerations
Suppose you’re wondering why the example above is more than $7,000 above the highest average real estate income in the U.S. First, the example included the median sales prices and number of transactions instead of averages. Also, we’ve yet to account for a real estate agent’s expenses:
Most real estate agents work with brokerages like RE/MAX or Keller Williams. You’re required to either pay your brokerage firm a flat fee every month or agree to a commission split with them. Windermere, based in Seattle, for example, starts their agents off with a 50/50 split, which then tips more in the agent’s favor after they excel in reaching specific goals. Even if you get to 70/30, you’re only earning $78,239.83 off of your original $111,771.18.
While brokerages can pitch in, realtors are usually responsible for their marketing costs, including:
- Writing descriptive copy for their listings
- Getting listings online
- Staging homes
- Hosting open houses
- Arranging photo shoots
- Conducting a comparative market analysis.
Remember, they’re also writing offers, negotiating, spending gas money, taking clients to lunches and dinners to discuss the options, and much more. All of these costs eat up your bottom line.
Getting a real estate license
While it’s a one-time cost unless you move to another state, you should also account for the cost of your real estate license. There are two main costs to consider: your pre-license real estate education and the real estate exam and licensing fees.
Education costs will vary based on how many hours you’re required to rack up in your state. This can vary greatly. For instance, Alabama requires you to fulfill 60 hours of real estate education, while Colorado requires 168 hours. You should expect to pay around $350 for your real estate classes, and this varies from state to state.
Your real estate exam and licensing fees are more consistent. These fees include the following:
- Application fee
- State exam
- Background check and fingerprints
- Real estate licenses
Altogether, these fees cost an additional $350-$400, based on where you live.
Can You Make a Lot of Money as a Real Estate Agent?
So how much do realtors make in a year? As you’ve probably figured out by now, it varies substantially based on the following:
- Where you live
- Your experience
- Your niche
- The real estate market
- Which brokerage you’re with, and what their commission split is
- Your marketing costs
And a bunch of other factors.
One surefire way to boost your earnings is to network with others in the world of real estate. With BiggerPockets, there’s an opportunity to do so! By browsing our forums and attending meetups, you can expand your real estate network, gain access to more potential clients, and even start or become part of a power team!
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.