How much money does a real estate agent make?

How much money does a real estate agent make?

One of the benefits associated with a career in real estate is the unlimited earnings potential. Unlike salaried or wage-paying jobs, a commission-based job allows you to get back in income what you put into it in effort and energy. So, what is the typical real estate salary range? How does commission work? And what factors will impact your annual earnings? We’ve put together some information to help answer these common questions regarding real estate salary and earnings potential.

How much money does a real estate agent make?

If you watch enough TV programs about real estate, you might think 
that all real estate agents make millions. Realistically, that’s not the case. According to the NAR 2015 Member Profile, the median gross income of REALTORS® (and remember, REALTOR® is a professional designation; not every real estate agent is a REALTOR®) was $45,800 in 2014. This is 25% higher than the median annual wage for all workers. It also represents the average of the combined total of people who work part time and those who work full time. Furthermore, real estate is often a referral-based business. Those who have been involved in the business the longest typically are the most successful. Those with 16 years or more experience earned the highest real estate income: approximately $68,000 on average.

The report also points out the correlation between income and the number of hours worked. Those who typically worked less than 20 hours per week had a median gross income of $9,700 a year, while those who worked 60 hours or more per week had a median gross income of $94,200.

Some progressive brokerages are moving to a salary-based structure to appeal to new agents—particularly millennials—who may be interested
in a more reliable source of income. While this is not for everyone, it’s certainly an important consideration if you’re comparing brokerages.

How commission works

How much will you make when you 
sell a home? On real estate reality television, we often see agents sell a home for $400,000 at a 6% commission rate. That would be $24,000 with just one transaction. Or would it be?

Commissions are typically paid by the property sellers and—by law—are negotiable. “Standard” real estate commissions typically range from 3% to 7% for residential sales, depending on the local area. That commission is split between the buyer’s agent and the seller’s agent. For the purposes of this example, we’ll use 6%.

If you sell a home for $400,000, the 6% commission is $24,000. If another agent was involved in the transaction, your split becomes 3%, or $12,000.

Now you need to take into account your brokerage split. New agents typically have to give their broker a bigger split, because commission splits are typically tied to experience and the amount of business you bring in. If you have a 70/30 split with your broker, that leaves you with $8,400.

Variables that impact your real estate salary

Your location

While the commission rates tend to stay in that 3% to 7% range, the dollar amounts of real estate commissions vary greatly depending on the location and the average sales price in your community.

The local economy

Economic fluctuation is another factor that may impact your real estate salary from year to year. When job growth is high, and more people are moving to your area, home sales rise. If the local economy is depressed, you’ll need to work harder to make transactions happen.

Your real estate expenses

As an independent contractor, you’ll usually be responsible for your own licensing education and fees, health insurance, vehicle expenses, marketing and advertising, internet service, MLS fees, brokerage fees, continuing education, and more. These expenses will affect your net real estate salary. According to the NAR 
study mentioned above, a REALTOR’s average expenses in 2014 were $6,710, not including brokerage splits.

Your ability to network

Real estate is a relationship-based business. Your real estate salary is directly correlated to how well you network and make connections, and your ability to turn those connections into transactions. Make a point of connecting with at least five new people each day, and grow your sphere of influence to maximize your real estate salary potential.

Exploring a career in real estate? Browse our blog for tips and tools to help launch your real estate career.