One of the most attractive parts of being a real estate agent is being an independent contractor and having no limit to how much you can earn. The most common way for real estate agents to get paid is by commission after a successful real estate transaction.
Whether you are just curious or thinking about starting your own lucrative real estate career, this article will explain to you how agents make a living as well as provide you with a breakdown of how much they can make per sale. Let's dive in and "show you the money!"
How Much Do Real Estate Agents Make A Year?
According to US News and Reports, the median salary for real estate agents in the US is about $50,000 a year. However, that is not an accurate representation of how much they can actually make because there's no obligation to show up for work on any given day.
Successful agents work very hard to close transactions. It's more accurate to think of the median salary for the average real estate agents who are actively working to get business. Depending on the average home price in your market, you shouldn't be surprised to see some agents earning half a million or more per year.
What Are Real Estate Agents Paid To Do?
Listing agents are paid to market the seller’s home in order to receive the highest and best offer. Agent duties include understanding the market, researching similar listings, suggesting the property's selling price, and scheduling showings. They represent the seller's best interest when negotiating with a buyer or buyer's agent.Buyer agents help clients find the right house in the neighborhood, price range, and desired amenities. They work in the buyer's best interest and help draw up an offer to present to the seller.
How Does Real Estate Commission Work?
The listing agent negotiates the commission with the seller, and it appears on the listing agreement. Commissions are traditionally a percentage of the final sales price but can also be a flat fee.
The buyer's agent is usually aware of how much commission they will earn before submitting an offer. There is an agent-to-agent section for a house listed on the Multiple Listing Service (MLS). This section details the commission and has comments only the agents can see.
How Much Can A Real Estate Agent Make Per Sale?
The commission varies from state to state, usually between 3-5% of the final sales price for services rendered. Some states don't have listing agent commissions because of dual agency laws prohibiting them from representing both the seller and buyer in transactions. However, each side pays their own fees, so it doesn't change anything for sellers or buyers.
Example Of Commission Percentage:
How Is The Real Estate Agent Commission Split?
The total commission is shared with the buyer's agent, also known as the cooperating agent. Traditionally the commission is split 50/50 between both agents; however, the listing agent can decide how much to offer to a buyer's agent. They may offer less commission to a buyer's agent in a hot real estate market, knowing the home will sell easily.
At What Point Is The Real Estate Agent Paid?
The real estate agent gets paid at the close of escrow. so if a deal does not go through, they do not get paid.
Close of escrow (COE) refers to when a transaction is closed, and the seller's or buyer's agents have earned their commission. Closing happens when all contract terms are met, and an agreement between two parties is reached and eventually signed.
The deed or title is then transferred from one person or company to another. The closing date varies depending on where you buy your home; it could be anywhere from 30 to 90 days.
How Does A Realtor Get Paid?
In every real estate transaction, the licensed real estate agent is the sub-agent of a real estate broker. The real estate brokerage has a listing broker which all their real estate listings go under. The broker will typically manage the office and have the real estate agents do the public-facing work.
Example Of A How Commission Splits Work:
Both agents received $9,000 in commission; however, the escrow company writes the check out to their broker. The broker takes their fee and gives the agent the remainder.
How Real Estate Brokers Make Their Money
Real Estate Broker’s sources of income are a combination of broker fees, desk fee, office rent, and a commission split with their agents. The broker fee can be either a flat or a percentage per sale.
The broker fee, desk fee, or split can be 10% to 50% of the commission based on their contract. On a $9,000 commission, the real estate agent can expect to walk away with $4,500 to $8,100 pre-taxed. They base the split on experience, the amount of transactions the agent does in a year, or who procured the client.
If you are part of a well-known company like Coldwell Banker or Century 21 expect to pay additional franchise fees to the brokerage. Newer companies like Keller Williams and EXP Realty charge all their agents the same amount per year.
The annual broker fee could be $16,000, so the broker will take 20% from each commission until they collect the total amount. After the $16,000 is paid, the agent will get 100% of their commissions for the rest of the year.
How Do Agents Get Paid From Referrals?
Most real estate agents will form relationships with agents in different states or specialties, such as commercial real estate. They can send them a client and collect a referral fee, typically around 25% of the commission.
Can A Seller Negotiate A Realtor's Commission Rate?
It's not uncommon for sellers to negotiate the commission rate with a real estate agent. Some real estate agents are willing to work for a lower commission rate or offer a flat fee by reducing the number of services they are willing to perform.
Sellers can ask competing real estate agents how much they would charge for selling the property. A newer seller's agent might offer their services at a discounted commission of say 5% of the home's sale price, which will save the seller thousands over hiring experienced agents.
Paying The Commission As A Percentage Versus A Flat Fee
With the inflation rate increasing over time, some real estate agents traditionally charge a percentage instead of a flat fee in order to keep up. Also, charging a percentage of the final sale price gives them an incentive to get the homeowner as much money for their home as possible. So it makes sense for most listing agents to charge 6% or more and offer half or more to the buyer's agent. The amount of 6% was established over 70 years ago during a landmark supreme court ruling about price fixing.
Low commission and flat fee real estate brokerages have always existed, technology is helping to make them more profitable than in the past. When Realtors list a home on Multiple Listing Service (MLS), it gets circulated to high-traffic websites like Zillow and Realtor.com. Buyers can set up alerts and receive an email notifying them a home that matches their criteria has been listed. Real estate agents now can spend less money to market properties than in the past.
An example of a flat fee would be:
Homes priced Under $300,000
Homes priced Under $301,000 to $500,000
Homes priced Under $501,000 to $1,000,000
Seller pays Listing agent $2,500
Seller pays Listing agent $3,500
Seller pays Listing agent $5,000
Seller pays buyer's agent up to $9,000
Seller pays buyer's agent up to $15,000
Seller pays buyer's agent up to $30,000
The listing agent takes a lower commission, while the buyer's agent still gets up to 3% of the sales price in commission. This example illustrates that the real estate market will dictate how much the buyer's agent should receive.
Consider a buyer agent is showing 2 different listings to their client, and one of the listings offers a higher commission. Who's to say that the buyer's agent won't gently try to convince their client to make an offer on the home with the higher commission?
The seller can still offer a low commission to buyer agents, but they will risk having their home sit idle without offers. When a home just sits in a competitive market for too long, buyers start thinking there is something wrong with it and will be less interested in making an offer.
Why Is A Listing Agent Willing To Take A Flat Fee?
When a real estate agent takes a flat fee, they do not get paid more or less based on the final sales price of the sold house. Flat fee or low commission real estate brokerages services tend to be limited. They may present a list of individually-priced a la carte services. For example, charging a fee to hold an open house or help negotiating an offer might be two services offered.
The benefit of offering a flat fee for a real estate agency is they increase the volume of listings they have in their market. This means buyers will contact them to schedule an appointment to view properties. The listing broker can refer all their agents to these buyers and make money on the buyer’s side.
Real Estate Commissions: FAQ
See the most asked questions
According to the antitrust laws, this would be illegal. For this reason the National Association of Realtors (NAR) prohibits a uniform rate on commissions. Real estate brokerages are open to set their own rates; competition will control commission levels.
These two terms can be confusing because they sound like they're the same as the agent's commission, but closing costs are the fees paid to cover the cost of selling a home.
Closing costs in real estate transactions can include:
Altogether, the cost to sell a home will be about 8%-10% of the final sales price.
Agents often keep quiet about how much they charge in commissions. They don't want their competitors to determine what they make per sale. Discussing commission could be considered an attempt towards price fixing.
Conclusion: Real Estate Agents Work Hard for Their Money
Successful real estate agents have to work extremely hard to make sure deals close, and their customers are happy. If you are seriously considering becoming a real estate agent, remember you risk the sale falling apart and not getting paid.
If you decide to take on the challenges, the financial rewards can be worth it. You have the opportunity to set your own hours and be your own boss. Making deals happen means earning more money for you and your clients. Now go out there, get your real estate license, and go sell some homes!