Working as a real estate agent is a job with seemingly unlimited earning potential. Unlike the common salary-based or hourly-paid jobs, real estate agents make their annual earnings based on their real estate sales during the year. But how exactly do real estate agents get paid?
The average real estate salary is $48,930, but the annual income average for a real estate agent varies in each state.
Many people do not understand how real estate agents get paid. Because it is a different payment system than hourly and salary jobs, the payment method can intimidate those interested in working as a real estate agent.
In this article, we answer the following questions about earning commission:
- How do real estate agents make money?
- How do I calculate commission?
- What are commission splits?
- How do real estate agents earn more money?
How Do Real Estate Agents Get Paid?
Most careers offer an hourly wage or a salary. These salary or hourly-paid jobs are steady and provide a predictable income.
In real estate, pay is different. Most agents earn a commission payment for each real estate sale.
A commission is a payment made directly to real estate brokers for services rendered in selling or purchasing a property. A commission is a payment calculated from a percentage of the property's selling price, but it can also be a flat fee.
Earning a commission can mean an unstable income and an unpredictable inflow of money. But it also means that you have unlimited income potential. Your income relies on your sales performance.
Unlike an hourly-paid or salary job, your income is not capped by the number of hours you work Your rate depends on the number of properties you sell, your commission rate, and your property's sale price. However, not all commission is income. Because many real estate agents work for themselves under a sponsoring broker, some money is put aside for licensing fees and marketing.
How Do I Calculate Commission?
Commission rates typically range from 5% to 7%. Upon a successful property sale, 5%-7% of the sale price goes to the real estate professionals as their commission.
Typically, agents only get paid after the successful completion of a sale. If something goes wrong before the completion of a sale, agents receive no payment.
Here is a table that shows how much commission comes from different sale prices.
The more expensive the property, the more money an agent can make. However, more expensive homes typically take a longer time to sell. There are far more people on the market for lower or mid-priced properties than high-priced properties.
You may make far more money selling multiple mid-priced homes than trying to sell one high-priced home. It is a great idea to diversify your portfolio and work with people with varying budgets and real estate with varying price points.
What Are Commission Splits?
The average commission rate for a property is 6%. But one agent does not pocket the total amount. Both the buyer's agent and the listing agent receive compensation for their part in the sale. Additionally, agents must work under a sponsoring broker and split their portion of the commission with that broker.
The commission is typically split between four parties:
- Listing agent
- Listing broker
- Buyer's agent
- Buyer's broker
Though it is different for many agents, the most common practice is for each party to get a fourth of the price.
Listing agents and buyer's agents usually split the commission 50-50. From there, agents and brokers typically split their half of the commission 50-50. Newer agents sometimes only receive 30%. More experienced agents may pay a "desk fee" at their brokerage and keep their entire portion of the commission.
How Can Real Estate Agents Make More Money?
Finding ways to earn more money as a real estate agent is one of the challenges that new agents face. With time and networking, finding new leads becomes another part of the job.
It may take time to get to a place where you earn a lot of money working in real estate. As you gain more experience and build your sphere of influence, your income continues to grow.
Increase Your "Sphere of Influence"
Much of an established real estate agent's clientele come from what is known as a "sphere of influence." A sphere of influence in real estate is the group of people that you have some impact over. It is challenging to build trust among strangers and build a quality list of people who refer to you as their agent. But the few people who trust you to help them buy or sell homes may refer you to their friends and family.
Most people do not buy and sell houses very often. Maintaining a relationship with people over a series of many years until they are ready to use your real estate expertise can be tricky.
Increasing your sphere of influence should be an ongoing goal that pays off in your real estate business.
One way to have a consistent sphere of influence is to find a group or charity that is important to you.
Volunteer your time by helping others in need or find a hobby group that meets often. This networking method is a great way to meet people and maintain relationships. When someone in one of these groups needs a real estate agent, you will be there to help.
Another thing to consider is that even if this career is not what you expected at first, you need to keep going to be successful. Real estate is a career that builds with experience. You may not take a huge paycheck in the first few years, but you will gain valuable experience. As time goes on, you will make more money by getting more clients.
Written and Published by: VanEd