Real estate agent earnings vary widely based on a number of factors including experience, location and niche. Some agents struggle to make ends meet while others live comfortably.
However, some constants exist in how real estate agents work and get paid. For example, most real estate agents work on the commission they earn at the end of a transaction.
If you’re looking to become an agent or are just curious about how much real estate agents make, here’s what you need to know.
What Makes The Average Real Estate Agent?
“Location, location, location” is the mantra of real estate, so it’s understandable that the average annual income for a real estate agent varies from state to state, city to city.
Homes in major cities such as New York, Los Angeles and Chicago are priced higher than in rural areas. If you sell 10 homes in San Francisco, you’re making more than if you sell 10 comparably sized homes in Mars Hill, North Carolina.
According to ZipRecruiter, real estate agents in Washington earned the highest median earnings of $104,032, while real estate agents in North Carolina earned the lowest at $65,393. In 33 of the 50 states, the average real estate agent makes more than $80,000.
But again, these earnings can vary to a great extent. There are many reasons for this, but it comes down to commission.
What is real estate commission?
A commission is a percentage of a real estate transaction that goes to the buyer’s and seller’s agents. Instead of paying upfront to a real estate agent, commission rates are included in the sale price of the home.
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 volatility. The national average commission rate is 5.37%, which varies with each transaction.
How is the commission split?
Typically, the listing agent and buyer agree to an equal commission split. If the commission rate is 6%, both the agents can expect to earn 3%. If it is 5%, then each agent will earn 2.5%.
Let’s assume you’re selling your house, and the commission is 5.5%, split equally at 2.75% each. Here’s how much realtors earn based on these commissions:
| home sale price | buyer’s agent | seller’s agent |
| $100,000 | $2,750 | $2,750 |
| $250,000 | $6.875 | $6.875 |
| $400,000 | $11,000 | $11,000 |
| $500,000 | $13,750 | $13,750 |
| $750,000 | $20,625 | $20,625 |
| $1,000,000 | $27,500 | $27,500 |
| $1,500,000 | $41,250 | $41,250 |
| $2,000,000 | $55,000 | $55,000 |
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 are the ones who find the buyer for their home. The seller is also usually the one who pays the commission to both agents.
When do real estate agents get paid?
Typically, real estate agents only get paid when their clients close a transaction. In other words, they aren’t making anything while hosting open houses and marketing homes, showing potential properties to buyers, or during their many interactions with customers.
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 is not the right time for them. In these situations, the real estate agent needs to earn something. Conversely, you can complete a real estate transaction with a single client in weeks and make a five-figure commission. It’s all situational.
There are also instances when a Realtor may be paid upfront. For example, if an offer is accepted and a contingency cannot cause the transaction to fall through, the realtor may receive payment before closing. However, agents usually have to wait until the ink is dry.
What About Realtors Earning a Base Pay?
As we mentioned, real estate agents almost always make money on a commission basis. However, there are some agents out there who earn a percentage of basic salary and commission. For example, agents working at Redfin may receive an hourly wage plus a percentage of the commission.
These companies come with their own pros and cons:
Pros:
- not dependent on pay commission, When you’re just starting out, it often takes months to earn your first commission. Until then, you’re paying for everything out of pocket, which can get costly — especially if your transaction falls through.
- peace of mind, Similar to above, instead of waiting to earn commission, you earn a steady paycheck and you’ll know at least how much you’ll be making every two weeks.
- reduced tax burden, When working with an employer, it is their job to withhold taxes from your earnings. Commission-only agents are often paid a large lump sum amount every quarter or year, depending on how much they’ve made. If you need to keep track of how much you owe, you could be in trouble when tax season comes around.
Shortcoming:
- you have a boss, Part of what makes the job of an agent so great is the freedom and flexibility that comes with it. Apart from your customers, you don’t answer to anyone. If you’re earning a basic salary, you’re answering to someone.
- It is not recommended for experienced agents, Starting salaries can be helpful for beginning 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, It is worth repeating. If you’re yourself and handle $5,000,000 in sales for the year at 3% commission, you’ll make $150,000 (before your broker’s cut and additional fees, which we’ll get to shortly). If you did the same thing while working somewhere with a base salary of $50,000 + 15% commission, you would make $72,500 ($5,000,000 * 3% * 15%) + $50,000. That’s quite a difference!
How many houses does the agent sell in a year?
According to the National Association of Realtors (NAR), realtors were involved in 12 residential real estate transactions in 2021 (either as buyer’s or seller’s agents).
The median home sale price in 2021 was $346,900. In other words, if you were a realtor in 2021 and were involved in 12 transactions of $346,900 each and earned a commission of 2.685% (your half of the national average commission: 5.37%), you would have:
$346,900 * 12 * 0.02685 = $111,771.18
This is a big earner!
additional cost considerations
Suppose you’re wondering why the example above is more than $7,000 higher than the highest median real estate income in the U.S. First, the example includes the median sale price and number of transactions rather than the median. In addition, we haven’t yet accounted for the expenses of a real estate agent:
commission deduction
Most real estate agents work with a brokerage such as RE/MAX or Keller Williams. You will either have to pay a fixed fee every month to your brokerage firm or agree to a commission split with them. For example, Windermere, based in Seattle, starts its agents with a 50/50 split, tipping more in favor of the agent once they excel at reaching specific goals. Even if you reach 70/30, you’re only earning $78,239.83 out of your original $111,771.18.
marketing cost
While brokerages can pitch, realtors are usually responsible for their own marketing costs, which include:
- writing descriptive copy for their listing
- get online listing
- staging houses
- hosting open houses
- photo shoot arrangement
- Conducting a comparative market analysis.
Remember, they’re also writing offers, negotiating, spending gas money, taking clients to lunch and dinner and discussing options, and much, much more. All these costs eat into your bottom line.
getting a real estate license
While this is a one-time cost until you move to another state, you must also account for the cost of your real estate license. There are two main costs to consider: your pre-licensed real estate education and real estate exam and license fees.
The cost of education will vary based on how many hours you need to rack up in your state. It can be very different. For example, Alabama requires you to complete 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 license fees are more consistent. These charges include the following:
- Application fee
- state exam
- background check and fingerprints
- real estate license
In total, these charges cost an additional $350-$400, depending 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, this varies a great deal based on the following:
- where do you live
- your experience
- your niche
- real estate market
- Which brokerage are you with, and what is their commission split
- your marketing costs
And a bunch of other factors.
One surefire way to boost your earnings is to network with others in the real estate world. With BiggerPockets, you have the opportunity to do just that! By browsing our forums and participating in Meetups, you can expand your real estate network, gain access to more potential clients, and even start or be part of a Power Team Are!
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Note by BigPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
