How Much Does a Real Estate Agent Make? (How Agents Get Paid)
How Do Real Estate Agents Get Paid?
One of the most common questions people ask when considering a career in real estate is how much does a Real Estate Agent make and how do they get paid? It's important to understand that Real Estate Agents do not get paid hourly, instead, they make a commission on the sale of a home in which they represented the client.
A Realtor's commission is based on several factors including the price of the home, the commission split marketed to the real estate firm and the split between the firm-Realtor. Again, the Agent is not paid hourly and they operate as an independent contractor within their real estate firm (the brokerage they work for). How much a Real Estate Agent makes per sale is unique in every situation and there are quite a few factors that go into it. Let's dive in and learn how it works:
$38,067 is the average commission Realtors make each year.
One of the first questions people have before beginning a career as a Real Estate Agent is "How Much Money Does the Average Real Estate Agent Make?" The above infographic tells you exactly how much Realtors make as well as how those commissions are made. Many Realtors are part-time professionals who hold a real estate license, without actively selling homes and thus the numbers are a bit skewed taking into account both full-time and part-time Real Estate Agents.
The $38,067 is the average commission Real Estate Agents make, though most full-time Agents will exceed that number. My first year as a Realtor is the only year I made less than the $38,067 average commissions number and I think that most Agents who work hard will see the rewards can be much greater than $38,067 per year.
Your first year in Real Estate is likely going to be your most challenging.
Real Estate Agents in their first year should expect to go a minimum of 9 months without making anything. One piece of advice for most first-year Real Estate Agents is that they should have supplemental income whether that's in the form of another job or earning money through other avenues.
One of the best ways to get started in real estate is to join a team or a brokerage that can provide you with an influx of leads that will lead to closings for you.
When I moved to Raleigh from Boston and became a Realtor, I knew no one in the local area and nothing about how much money to expect to make in my first year. In my first year as a Real Estate Agent, I closed three transactions and made $14,372.13 after paying my broker their split of my commissions.
For anyone who has tried to live on $14,372.13, it is nearly impossible, especially when you're spending money to market your real estate business.
Fast forward to my second year I closed 16 homes and a year later my brokerage closed over 50 homes. Now my real estate brokerage makes the money and I pay myself a salary.
The short answer is no. Real Estate Agents do not make money by the hour. Real Estate Agents make money by the number of houses they sell and there is a direct correlation between how many hours you work and how much money you make.
There are a lot of part-time Agents who have a real estate license and will never sell a home. Their time and effort are not put into building their real estate business.
Those Agents who make real estate a career and a full-time job put in the hard work and effort to build a successful career as a Real estate Agent. These folks will make far more than the average Real Estate Agent who brings in $38,067 on average.
Every house that a Real Estate Agent makes money on will have a different commission structure and percentage. Location matters. Some homes even have Agent bonuses.
In Raleigh, the commission payout is totally different than the commission payout in California.
If a Real Estate Agent charges 6% to sell a house it's likely they will split that commission two ways, with the Buyer's Real Estate Agent. Once that split occurs the leftover 3% will be paid to the Real Estate Brokerage who will then write their Real Estate Agent a check on the agreed-upon amount or percentage.
In my early days as a Realtor, I remember my Real Estate Brokerage took 36% of each commission check. That was too much of my hard-earned money going to my Brokerage without them providing enough value to have earned it, so I made a change. If my Brokerage was supporting my growth with leads and more closings that would have been a different story, they weren't. I joined a brokerage that charged me a flat $399 per transaction instead before opening my own brokerage, Raleigh Realty. How Do Real Estate Agents Get Paid?
Real Estate Agents either represent the seller, the buyer, or both in a real estate transaction. The amount the Agent will be paid depends on the commission percentage that is agreed upon between Agent, seller, buyer, and real estate brokerage. If we use 6% commission as an example, as we did in our infographic above it will work like this:
The 6% commission is split between the two Real Estate Agents who are representing the buyer and the seller. Those commission checks are made out to the real estate brokerage those Agents work at. The brokerage will take their cut of each check and write a check to the Realtor for the sale of the home. After all, is said and done the Realtor makes far less money than it may appear.
It's important to remember that Realtors are not paid by the hour, they are paid by the number of homes they sell. The money does not flow directly to the Realtor, either. The commissions are paid to the real estate brokerage first and the Realtor then receives a percentage of those commissions.
When you join a Real Estate Brokerage they will have specific guidelines on how you will be compensated for every home that you sell. Each Realtor makes a different amount of money on each home they sell based on the sales price, the commission split, the brokerage split, and any expenses that they may have incurred along the way to selling the home.
One thing people underestimate is the number of expenses and overhead Real Estate Agents have. Real Estate Agent is one of the most expensive careers because the money spent is often your own. Office space, health insurance are two of the larger expenses you will incur that a normal 9-5 corporate world job would not. Often your employer is the one spending money on office space and health insurance while your expenses are minimal.
Another large expense that Realtors have is their vehicle, insurance, maintenance, and gas money that they spend driving all over town showing houses and meeting with Clients.
The largest expenses we have at Raleigh Realty are our technology which is our number one form of marketing. We have spent far more than $30,000 on our website and over $10,000 on online marketing. Our website is our number one form of lead generation so it only makes sense that we spend the bulk of our earnings on growing and improving our real estate website for folks searching homes for sale in Raleigh!
One of the biggest expenses most people don't realize when beginning their career as a Real Estate Agent is that it costs money to be a Realtor. You will have to pay for your real estate school, your real estate license, the MLS, and other organizations that you join. These expenses are ongoing and add up to thousands of dollars pretty quickly. On top of it all, you will be paying hundreds and hundreds of dollars per year for the continuing education that is a commission requirement.
Thinking About a Career in Real Estate?
Don't let these numbers deter you from a career as a Real Estate Agent. Good Real Estate Agents make far more money than the average Agent who makes just over $38,000/year and if you dedicate yourself and work hard, you will too! Here are a few steps to becoming a Realtor. One great way to start in Real Estate is to join a team, start in new construction sales, or even do it for yourself with a part-time job to help you handle the bills. The sales cycle in real estate is a long one and you likely won't be making much right out of the gate!