Much like real estate itself, the answer to how much a real estate agent makes in annual pay is largely based on location, location, location. Commission splits, brokerage fees, and average sales price all affect commission and vary by location.
Where You Work Determines How Much You Make
The real estate industry is a much different career path than many other jobs. Real estate agents are typically considered private contractors meaning that they technically own their own business and can make their own rules. This is mostly true, but doesn’t tell the whole story. According to laws in every US state, real estate agents are required to work under a real estate broker unless they become a licensed broker themselves.
Brokers provide agents with the experience needed to make good decisions in tricky situations, something that happens quite often in real estate. They also often provide some benefits to agents in the form of listing/closing departments, usable office space, and errors & omissions insurance.
The fees brokerage charge agents, often referred to as “splits”, vary by franchise and broker. Splits of 60/40 (agent gets 60% of their commission, broker gets 40%) aren’t unheard of, but there are also brokerages that offer 0 split arrangements. Many companies choose a hybrid model where the broker gets a part of the agent’s commission until the agent sells a certain volume of property, reaches a particular income threshold, or has worked for a certain amount of time.
This is largely why the hiring process in real estate also seems completely backwards to non-industry folks. Typically a company hires a contractor, but in real estate, agents typically interview brokerages instead to choose where is the best fit for them. While brokerages can accept or reject agents as they choose, more agents typically means more money to the broker from commission splits so they’ll often accept or even recruit new agents.
Geographic Area Affects Earning Potential
The majority of US real estate agents work on a commission structure meaning that what they make on any given transaction is based largely on the sale price of the property. Like the average cost of a property, the exact percent of the commission can vary by area or property.
In the US, real estate commission fees vary from place to place, but average about 6 percent. This fee is then divided between the listing agent and selling agent, with the split often being fairly equal, although it’s not uncommon for the listing agent to receive a higher percentage. Both the listing and selling agents will then split their portion of the commission with their respective brokers.
While commission splits are known from the get-go, the selling price is what really determines how much money an agent makes. At the end of 2019, the average US home was estimated to be valued at $241,000. If a real estate agent sold a house like that at a 3% commission,they would make $7230. However, if an agent sold a property in San Mateo County, California where the average estimated home value was $1,182,300, the agent would make $35,469. Now compare this to Desha County, Arkansas where the average home value was an estimated $65,526. An agent selling a home here could expect a payday of just $1965.78 before broker splits, desk fees, and property marketing.
Real Estate Opens Many Doors
Selling properties isn’t the only way that real estate agents make money. While many practicing agents work with buyers and sellers, others work as property managers, property flippers or landlords. A career in real estate comes with many benefits. Learn more by checking out our article how to become a real estate agent.