ENTREPRENEURSHIP

How Much Does A Real Estate Agent Make?

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After the last few years of the housing market frenzy, it’s especially easy to get the idea that most real estate agents are making bank.

But that’s definitely not always the case.

Real estate agent incomes

Real estate agents know a lot of factors determine how much they make. From commission splits, to the hours they put in, to the years of experience they have in the industry, several variables determine what kind of income agents can bring in any given year.

According to the National Association of Realtors’ (NAR) most recent member profile, released in July 2022, the median gross income of Realtors in 2021 was $54,330, up from $43,330 in 2020.

What is a real estate commission?

A real estate commission is the traditional method through which real estate agents earn money for the services they provide to clients. Typically, a commission is based on a percentage of how much a home is sold for (often 5-6 percent), and it’s agreed upon before sellers and their agents enter into a contract together. However, commissions are always negotiable.

There are also different types of commission models. In the full-service commission model, commissions can be negotiated at any point during the homebuying and selling process, depending on an agent’s performance, according to NAR. Reduced service or discounted fee models give consumers more flexibility on what services they’ll pay for and how much, and a flat fee model allows agents to charge a flat fee for their services to clients.

How does commission work in real estate?

Depending on their agreement with their managing broker, agents stand to make a different set amount from each sale, since commissions are split between brokers and agents.

According to the 2022 NAR Member Profile, the majority of Realtors earned a fixed commission split with their broker in 2021, meaning that they earned a set percentage below 100 percent of the typically 5 or 6 percent they made on the seller’s sales price.

Still, 20 percent of Realtors earned a graduated commission split in 2021, which means their commission earnings from their broker increased with their level of productivity. Eighteen percent of Realtors earned a capped commission split, meaning that after they met a predetermined threshold agreed upon with their broker, they could keep 100 percent of their commissions.

Difference between real estate agent, broker and Realtor

Understanding the difference between a real estate agent, a broker and a Realtor is important to understanding how commissions work exactly.

A real estate agent is someone licensed to work under a designated real estate broker. Brokers are responsible for making sure agents stay in compliance with their state and national real estate laws, and pay out a percentage of commissions to agents. Agents cannot receive commissions directly from their clients.

Meanwhile, individuals with broker licenses hire on real estate agents as employees — most often as contractors. Commissions are paid to brokers, who then divide the commission with the agents who handled the transaction.

Realtors are real estate agents or brokers who are members of NAR and abide by NAR’s code of ethics.

Breakdown of real estate commission example

Here’s one example of how real estate agents and brokers involved in the sale of a $400,000 house might be paid.

If the listing agent’s commission rate is 6 percent, that means the total commission for the sale is $24,000, which is paid by the seller (unless otherwise agreed that the buyer and seller will somehow split the cost of the agents’ services, which is relatively unusual).

The broker of the listing agent and the broker of the buyer agent will then evenly split that commission, with each receiving $12,000. The brokers then pay out each of their agents, based on their own individual commission split agreements.

A commission split of 60/40 where the agent receives 60 percent of the commission and the broker receives 40 percent is pretty typical, but splits can vary depending on each individual agreement.

In this case, if both the listing broker and agent and the buyer broker and agent had a 60/40 split agreement, commission payouts would be as follows:

Listing agent: $7,200

Listing broker: $4,800

Buyer agent: $7,200

Buyer broker: $4,800

It is not uncommon for top-producing agents with a lot of industry experience to negotiate higher commission splits with their brokers, like a 70/30 split.

There are cases too where an agent might represent both the seller and buyer in a transaction, in which case, the agent and their broker would split the commission amongst themselves. In this example, still with a 60/40 split, the agent would receive $14,400 and the broker would receive $9,600.

On average, how much do real estate agents make?

According to job marketplace Indeed, the average annual salary for an agent in the U.S. is currently $94,031.

As previously noted, the median income for Realtors is much lower than that at $54,330, as of 2021.

Broken down by broker versus agent, however, there was a pretty significant difference in median gross income in 2021, according to NAR’s member profile — brokers or broker associates made a median gross income of $90,000, while sales agents made a median gross income of $38,300.

Not surprisingly, income also varies by experience and hours worked per week. A study conducted by McKissock Learning found that the average real estate income doubles after an agent’s first year in the business.

Realtors with 16 years of experience or more brought in the biggest incomes in 2021, with a median gross income of $85,000, according to the NAR member profile.

Those Realtors with six to 15 years of experience earned a median gross income of $75,000, while those with just three to five years of experience brought in a median gross income of $51,600.

And Realtors with just two or fewer years of experience, however, could not even muster a five-figure salary — those Realtors made a median of $8,800 annually before taxes and expenses.

Meanwhile, Realtors who clocked in a staggering 60 hours or more of work per week reaped the benefits with healthy six-figure salaries, NAR’s report found. The median gross income for Realtors in this category in 2021 was $144,400.

Those who worked a slightly more reasonable amount of 40 to 59 hours per week also fared well with a median gross income of $85,400.

And Realtors who worked about 10 to 20 hours less than a typical workload made about half as much, with agents in the 20 to 39-hour workweek range bringing in a median gross income of $39,500. Those Realtors who worked strictly part-time, with less than 20 hours per week, earned a median gross income of $13,300.

The market that an agent chooses to work in can also have significant ramifications on their income. Real estate agents in New York have the highest income with an average income of $93,100, whereas agents in Illinois have the lowest incomes at an average of $30,270, according to a study by VanEd.

Real estate agent income FAQs

How much does a real estate agent make per sale?

The dollar amount that a real estate agent makes on each home sale differs based upon a number of variables, including how much commission the brokerage charges for the sale (may be a percentage of the sales price or a fixed fee), how much the home sells for, and the commission split agreement between the broker and the real estate agent.

Do real estate agents get a base salary?

Most real estate agents do not earn a base salary, but make their income solely based on a commission. However, a few real estate brokerages, one of the more high-profile of which is Redfin, do hire their agents as employees and pay them a salary, and sometimes bonuses.

What is a fair commission for a real estate agent?

Most real estate agents charge clients a 4 to 6 percent commission on their home sale.

Email Lillian Dickerson

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