How Much Money Do Real Estate Agents Make?
Sep 22, 2023
Over a three stretch in 2008-2011, thousands of Realtors left from the profession as a result of the 2007-2008 housing crisis. Ten years later COVID shook up the housing market, leading to huge price gains and big commission paychecks for agents. Today, real estate is still a fantastic career or side hustle despite high interest rates and low housing supply.
Considering a career in real estate sales? First it's important to understand how agents get paid including the total percentage of the sale that agents earn.
How Much Money Do Realtors Make?
When an agent lists a home, they earn a commission that is calculated based on the price of the home. Listing commissions can typically range from about 2-3% on average. The seller actually pays the listing commission and buyer agent commission, but generally an agent only earns one side of the commission - except for in the unique and rare scenario of "dual agency" - which occurs when one agent represents both the buyer and the seller.
Let's look at example of listing commission. If a homeowner sells their home for $400,000 home and they've agreed to a the commission of 3%, then the listing agent brokerage will earn 3% or $12,000. Notice that I wrote "listing agent brokerage". That's because the agent themselves don't technically earn the commission, but rather their broker does. The agent keeps a portion of the commission after the brokerage keeps an agreed upon "split".
Agent Commission Splits (How it Works)
All brokerage design agent splits differently. However the national average is about 80% - 20%. This means that the agent keeps 80% of the commission on transactions and the brokerage keeps 20%.
So, using the example above - if an agent sells a house for $400,000 at a 3% listing commission and with a broker split of 80%, then the agent will keep $9,600 ($12,000 x 80%).
Agent splits are often dictated by these factors:
- Source of the client
- Type of transaction
- Size of transaction
- Commission cap
- Agent experience
We will explain the commission cap a bit later, but the most important factor in commission splits is the source of the client. If the agent themselves were the procuring cause of finding the lead (home seller or home buyer), then the split is likely to be higher. However, if the brokerage provides a lead to one of their agents with little or no effort from the agent, it is likely that the broker will keep a higher proportion of the split.
How Agent Commission Work When Buying or Selling a Home
The average total commission paid by sellers in the US is about 5.5%. You've probably heard that the customary total commission is 6% and that is true. However, all commissions are completely negotiable. In other words, the seller may negotiate the commission with their listing agent or offer a lower commission to the buyer agent. In addition, discount brokerages may ask for significantly lower commissions. For example, SimpleShowing offers a standard commission of 1%.
In general, buyer agent commission is always negotiable. Some agents may discourage the seller from offering a lower commission, but it is ultimately still up to the seller to set the buyer agent commission offered. The total sales commission will be spelled out in the listing agreement and agreed to between the home seller and the listing agent.
It's important to note that commissions also vary by state and city. Some regions charge lower commissions due to the competitive nature of the market or as a result of high (or low) home values.
Listing agents earn commissions by fulfilling these duties as the listing agent:
- Preparing pricing and valuation analysis (Comparable market analysis)
- MLS Listing and real estate app distribution
- Providing Seller disclosure documents and Community disclosure documents
- Responding to buyer agent/buyer inquiries in timely manner
- Formal review of purchase agreement and exhibits
- Preparing any necessary counter offer docs or addendums, as necessary
- Negotiating terms of contract on behalf of seller
- Meeting prospective buyers at property in the absence of buyer representation or if Buyer’s Agent is unable to attend
- Assisting with contract-to-close process related to inspection and appraisal findings
- Prepare appraisal appeal report if property does not appraise for purchase price
- Showing/home tour coordination
- Installation of lockbox and yard sign
- Providing professional, high resolution photography or other marketing assets
How Much Do Top Real Estate Agents Earn?
The average agent in the US closes 7 home transactions per year, while the top 5% of agents in the US closes 23 home transactions per year.
The top 1% of agents close 41 homes per year, about 6x as many as the average agent.
So, let's dig into the numbers and to demonstrate what this translates into for income.
If an average agent in a typical US market, where home values are $350,000 closes 7 deals per year and the commission rate is 3%, the agent will earn $58,800 (assuming an 80% broker split).
A top 5% agent who closes 23 homes per year in the same market will earn $193,200.
A top 1% agent who closes 41 homes per year in the same market will earn a whopping $344,400! Keep in mind that this number can escalate quickly in a more expensive market.
What It Takes to Be a Top Producing Agent
Most agents in the top 5% have been in the business for an average of 9 years. It takes several years to build up a client base while also attracting new clients. Top agents are proficient at using lead generation tools and client referrals to boost their business.
Veteran agents also maintain high commission rates when confronted with clients that ask for a lower, negotiated commission structure.
Lastly, top agents generally build a team of co-agents that can help with showings and listing management tasks and marketing.