With most occupations, it’s fairly easy to answer how much one earns on average. But to answer how much does a real estate agent make… well, that’s a very complicated question to answer.
But because our team at RealEstateAgent.com enjoys difficult tasks, we have decided to tackle this one and answer that question of how much does a real estate agent make. Let’s hope we do a good job with it by providing valuable information without becoming too technical (boring) and complicated (also boring).
How much do real estate agents make a year?
Around $40,000 a year in real estate agent commissions.
Well, not so short. We need to develop this answer a bit.
Those 40k are the average, and this average is skewed down because there’s a large number of real estate agents that have a license but only practice part-time – or they don’t practice at all; they just hold the license so, should a relative decide to buy a house, they can help out and earn an easy real estate agent commission. Serious real estate agents can (and do) make MUCH more than that.
But how much? Well, in comes…
Understanding the professional scenarios and hidden costs
To figure out the big question of how much does a real estate agent make, we need to understand all professional scenarios and hidden costs of the profession.
First, let’s add some context to real estate agents and housing transactions as a whole.
When a home seller sells a house to a home buyer, there’s a money transaction between the two, right? When they do it with no help from anyone, it’s a clean exchange: whatever the home buyer agreed with the home seller regarding the market value of the house gets transferred from the former to the latter. Now, when they use the help of real estate agents, a real estate agent commission – typically 6% of the total price of the house – is split between them. 3% for the buyer’s agent, 3% for the seller’s agent. Why use a real estate agent in the first place? For the home buyer, it makes the process faster because the agent has a better and faster access to a larger pool of houses and he knows all the shortcuts to get straight to business. For the home seller, it’s a no-brainer: using an agent will make him negotiate a better deal and sell the house for more than if he were to do it by himself. Plus, for the both of them, using a real estate agent helps them avoid pitfalls of complex processes like closing, title transfer, escrow etc.
But back to understanding how do real estate agents get paid etc: it was somewhat easy to understand until now but it gets complicated.
So, every agent needs to work under a broker, right? That creates multiple scenarios:
If you’re a real estate broker that also acts as a real estate agent, then, fine, that 3% is all yours. BUT, in the very rare case of a dual listing, you can end up earning the whole 6% real estate agent commission!
However, if you do work under a broker, that 3% is not clean; it is split with the broker. How much goes to each party? There’s no exact answer to that either. If you’re a novice agent, chances are you will split that 3% real estate agent commission 50-50 with the broker. If you’re experienced and bring a lot of dough to the table, you might be able to negotiate that and convert it to 70% you, 30% broker.
See how it’s difficult to answer how much does a real estate agent make?
And that’s because we’re assuming this guy just earns real estate agent commissions. There are rare cases when the professional is in a big company and gets paid a fixed salary besides his (often diminished) shares of the real estate agent commission. Not to mention what the agent can make off of referral fees – that can also change the way you calculate the answer to how do real estate agents get paid.
You will only be able to answer the question of how much does a real estate agent make when you put the earning against the costs, right? What good is saying Bobby earns $3 for a jar of cookies when the flour, chocolate, milk etc. costs $5?
And again – we’re sorry! – there’s a lot of scenarios here.
For instance, an agent who discovered the blessings of building a real estate team will, of course, have higher spending than one who flies solo. He or She will have to deal with salaries (or a reduction in its real estate agent commission) to reward his/her co-workers. Ambition and success of the agent in question will dictate how big is the hit on his/her earning; but no agent can escape from these hidden costs:
Real Estate Industry fees. Some brokers deal with MLS fees, thus freeing the agent of this burden, however, there are always union and association fees that a professional might be a member of.
Transportation. Sure, maybe you live so close to the office that you can walk; or worse: the life of a real estate agent is so chaotic we’ve heard of agents that basically slept in their office! But, even in those cases, they still needed to drive around with the clients and go across town on several meetings, showings, open houses… transportation can take up a large chunk of your money between gas and vehicle upkeep.
Marketing. Independently of where you stand in the Old-School Marketing vs. Modern Marketing debate, these things cost money and make an impact on the calculation of how much does a real estate agent make. Online Ad campaigns, website maintenance, business cards, flyers, services like The OFFICIAL Real Estate Agent Directory® to connect you to homebuyers and home sellers … money!
Office cost. You and your team need a roof, tables, chairs, computer, phones (oh my God, that’s a category in itself; agent’s phone bills are through the roof!), internet, paper… and there’s the maintenance of all of that, right? Even if you’re a lone wolf, flying light from Starbucks to Starbucks, you still get to spend a little with pens, notebooks and that cup of coffee so you feel no shame of having that table all to yourself the whole day.
So, final answer to how much does a real estate agent make in average?
It will depend on (i) what stage that agent is on within the professional ladder, (ii) the number of deals he or she is making, and (iii) the amount of costs he or she has in connection with the whole operation. Let’s take a look at a factual example, so you can truly visualize how much actually ends in their pocket.
- House costs $100,000, generates a $6,000 commission (6% of 100,000)
- That $6,000 commission gets split 50-50 between you and the other party’s agent, so your share is $3,000
- But your deal with your broker is 60% for you and 40% for him, so you walk with $1,800
Okay, you did 30 of those the whole year, earning you $54,000 in real estate agent commission. You have no fixed salary and your total referral fee earning was of 10,000, bringing the total to $64,000.
But you had a $1,000 monthly cost exercising your occupation. In a year, that amounts to $12,000.
How much does a real estate agent make in a scenario like that? $64,000 – $12,000 = $48,000 a year.
Want to take have a more local view to see how things change in this big country? Let’s analyze how do real estate agents get paid in 3 very different housing markets:
How much do Real Estate Agents make in Florida
The median price of a home in Florida is $475,000.
And the sunshine state is pretty affordable, especially because the state has low sale taxes and no income tax, so Florida Real Estate Agents get to keep a lot of what they earn there. Food costs are low compared with other states too, which is good for all the lunch meetings you might have if you plan to exercise your agency in Florida.
Although those are good news, of course, there are the bad too; nowhere is perfect. Utilities in Florida are 12% more expensive than in the rest of the country, and that can cause a big hit to your office filled with people using computers with the AC on the whole time. Besides that, you’ll need a car because you can’t rely on the public transportation and your fellow drivers are not particularly skilled, so your vehicle upkeep will be constant. Not to mention the competition! It’s believed to have around 180,000 Florida Real Estate Agents out there. In 2017 alone, 32,223 new agents got their license. The pie might be big, but there are a lot of people fighting for their piece.
So, take that into consideration when figuring out how much do real estate agents make in Florida. The fact that you constantly see Florida cities ranked in the best cities in America (for singles, for families, to retire…) means it is a stable growing market; doesn’t mean all agents in there are swimming in money.
How much do Real Estate Agents make in California
The median price of a home in California is one of the biggest in the country at $510,000. San Francisco alone has an outrageous median price of $1,388,000! And the competition is pretty interesting; there are 140,000 active California Real Estate Agents; much less than Florida, a much smaller state. It wasn’t always like that; before the great recession, there were more than 250,000 active agents in the state. Crazy!
So it’s perfect, right? Wrong.
The Golden State’s cost of living is through the roof. If you thought Florida’s public transportation was bad… California also has one of the most expensive gas prices in the country. The medium Car insurance policy is also very expensive. And guess what: income taxes? The highest in the country. So, thank God the median price of a home is high, otherwise, do you know how much would they make there? Close to zero.
However, don’t get scared. Surely you will see California Real Estate Agents complaining because we all do complain about everything. But they’re definitely doing well there. It’s one of the top housing markets in the country, with a lot of good opportunities. Sometimes you hit a lucky break and get one single real estate agent commission that makes all the other costs seem like a penny out of your piggy bank.
How much do Real Estate Agents make in Texas
Now, look at this: Texas has a median home price of $265,000. The smallest one so far. And it’s a very concise average – Austin, the most expensive city in the state has a median home price of $429,900; still smaller than the average price in California and Florida.
Texas Real Estate Agents benefit from no state income tax just like Floridians. Depending on where you are in Texas, public transportation is pretty decent and will quickly transport you around with no need for a private car at all times. Office culture is very big, with thousands of companies headquartered in the state, which, in turn, makes office costs lighter. When it comes to utilities, parts of the state works within a de-regulated market, while other parts have utility monopolies and that can skew up and down the price a bit but not enough to come to the conclusion that, while making a smaller real estate agent commission, Texas Real Estate Agents usually have less deducted from them in the end. So it’s a profitable market, and if you are smart about the city you choose, you can build quite a fortune and empire there.
Those are just 3 out of the 50 United States of America. Is the one you were looking for not one of those, so you’re still wondering how much does a real estate agent make in the state you want to start your career in?
Well, sorry about that, but the good thing is that we’ve given you the blueprint. For you to figure out from here, all you have to do is fill in the blanks of these variables within the range of your ambitions. We hope they translate to a big real estate commission!