What Percentage Do Real Estate Agents Make?
Suppose you’re considering becoming a real estate agent. In that case, you may have wondered how much of the commission goes to the agent.
If you were wondering what percentage real estate agents make, then this post will be able to help you with that!
In this post, we’ll discuss what percentage agents earn and why it’s essential to consider their commission when searching for your next home!
Who basically would be a real estate agent?
The real estate agent would be someone who serves customers (sellers) during transactions with others, sometimes known as purchaser.
The agent acts as a liaison between a client and another party, handling communication back and forth between them. In doing so, they attempt to find common ground that satisfies both parties.
Sometimes called agents, most work for commission-based companies; they are independent contractors and are thus self-employed.
The Roles of a Real Estate Agent
There are many different roles a real estate agent can play in a transaction, from listing agent to buyer’s broker to escrow officer.
This distinction is important because they all have different responsibilities and compensation structures.
It’s also vital that both buyer and seller know what each role entails, so it’s not surprising that you get questions about it often.
When talking to potential clients, explain these differences clearly, so they know what they’re signing up for. And when you’re doing an appraisal or evaluation of the property, be sure to provide this information as well.
With today’s volatile housing market, it’s more important than ever for buyers and sellers to understand how their respective agents operate.
When partnering with the buyer’s broker, your needs always will take precedence over the seller’s.
For example, if you put in a lowball offer on the house but then wanted to walk away before it went into contract, your agent would have no obligation to tell the seller anything about your change of heart.
But if you were working with an individual listing the home and representing the seller, that person would have to disclose your intentions (at least under certain circumstances).
In any case, you are being clear on who represents who is vital when determining which type of real estate professional is best suited for your needs.
Percentage based on sales price
Agents selling homes will earn a base commission, typically split between them and their broker.
The more you charge for your services, typically, means higher commissions. Real estate agents generally get between 1 percent and 6 percent of a home’s sales price.
Suppose you’re working with an experienced broker with good relationships with lenders and other buyers’ money sources, such as investors or banks. Within this situation, you may be able to collect up to 3% in mortgage commissions.
However, 2 percent might be your ceiling if you have no relationships. Real estate agents must also understand the mortgage fees to determine how much they’ll make from a sale.
These fees are not factored into the commission amount because the borrower, not the seller, pays them.
One example is mortgage tax service charges, which vary from state to state but can run from .5% – 1%.
There are also loan origination fees and closing costs that can add up quickly, so it’s essential for real estate agents to know these numbers before going into negotiations with sellers about how much they’ll receive in commissions.
The Price of a Real Estate Agent
- Although a few veteran, top-producing agents earn well into six figures, it is not uncommon for a first-year agent to earn only $30,000. The average real estate agent makes $50,000-$60,000 per year.
This can vary based on location and experience level. Agents with more experience or highly skilled at networking and making connections with other agents tend to bring in more clients, which often leads to greater earnings down the road.
Those who work as a team may also be able to share expenses like marketing costs and office space. Many agents are full-time employees of brokerages, while others work independently by themselves.
Independent agents have the freedom to set their hours. Still, they must take care of all administrative tasks like accounting and paperwork.
When working as an independent agent, there’s no guarantee that you will ever see any profit!
Percentage based on the commissionable amount
When you living inside a flat-rate region, your agent will receive 4% of their commissionable amount.
If you buy or sell a more expensive home, your agent will receive 5% for each sale price.
- if you are selling a $500,000 home, your agent will earn (4%) * $500,000 = $20,000 + ($5%) * ($500,000 – 200K) = $10,000 + ($5%) * [($500K-$100K) – 40K] = $4,666.66. So your agent’s total earnings would be $34,666.66! And this is just on one deal.
Meanwhile, they have been closing other agreements while they wait to conclude yours so that they can continue to be paid from these other transactions.
It takes years of hard work and dedication to get to this point, and it has to start somewhere.
To give someone the experience needed for these vast paydays and high-end clients usually starts at the entry-level, where the commission will not be as high, but the responsibilities are still significant.
How Much Would Real Estate Agents Typically Charge?
This is a frequently requested subject, and here is a description of how commission arrangements work for Realtors across America.
Real estate commissions are set by zip code and usually range from 1% to 6%. So, if you have your heart set on selling your house in New York City, you can expect to pay at least a 2% commission.
On the one hand, some people like paying lower commissions because it means more money in their pocket; but on the other hand.
There’s some logic behind paying higher commissions: Buyers are more motivated to use a good agent if they know that most of what they pay will go directly into their seller’s pocket!
Plus, with low-commission transactions, sellers might feel pressured to take less than their asking price to keep costs down for the buyer.
Do Real Estate Agents Get Paid Weekly?
Real estate agents are compensated in several ways. Typically, you’ll earn a commission for every property you sell or lease.
The commission can be around 3 percent for residential sales, with more significant sums on commercial properties and homes over $1 million.
Whatever your commission is, it’s usually based on some combination of the gross sale price and total transaction costs (principal, interest rate, taxes, and insurance).
Divide your annual income by your average listing volume to get how much money you’ll make per property sold.
The latter depends on how long it takes you to sell each home: New agents often take 12-18 months to sell their first houses; however, it can take as little as six months if your market is hot.
You may also receive a salary from the company that employs you and earns commissions.
You could make more than $100,000 annually if you work hard enough, but many people don’t want to put in the hours needed for such high salaries.
What do the top 10% of Realtors make?
The top 10% of realtors made roughly $71,400 in 2011. The median income for a realtor is about $35,000 per year, and it takes just over three years to get there.
That’s not an insufficient salary for someone who gets to meet new people every day and help them buy or sell their homes.
Then again, it’s only an average salary. Many people in high-powered corporate jobs earn Realtors by a wide margin; however, when you factor in what they sacrifice (such as holidays and weekends), that difference might not be so significant.
Even so, being financially well off isn’t what attracts most people to a career in real estate. If it were, everyone would be selling homes!
Instead, what draws people to this profession are the lifestyle benefits, flexible hours, and working with the public on something important like buying a house.
We are taking up less space than any other profession because we can work from anywhere with an internet connection.
We also have the luxury of owning our businesses and having more control over our earnings potential than almost any other profession.
Many financial factors contribute to how much money a person makes in real estate. Still, there’s one thing we can’t change: location!
Real estate prices vary greatly depending on where you live, which means your earning potential will depend on where you work.
What is the most common commission for a realtor?
The most common commission paid to a realtor is 6%. This includes single-family homes, condos, co-ops, and townhomes.
The commission for selling these types of properties may not be negotiable as it is standard.
However, some agents will accept a lower commission to win your business when selling commercial property or vacant land.
To get a feel for what other sales are occurring in your area and how they compare with prices you’ve seen elsewhere, request copies of recent comparable home sales from your agent.
This data can help you decide if you’re dealing with an experienced professional who knows what they’re doing and what is realistic to expect when negotiating your price.
How Real Estate Agents Make Money
Of course, there’s also money to be made from selling homes. This is typically known as a commission, which varies by the agent, but it can be up to 6% of your home’s final sale price.
- if you sell your $300,000 home for $330,000, your commission is $9,000.
Agents usually make most of their money through buying and selling properties. After all, they don’t get paid much on brokerage agreements that don’t result in sales!
In most states, agencies have a legal right to represent buyers and sellers as long as they disclose that fact to everyone involved early on.
That said, some companies have an exclusive agency agreement that restricts the agent to one side of the transaction.
These are uncommon but may be helpful in competitive markets where one party has little chance of winning over the other party.
The bottom line is if you hire an agent, make sure you know who they work for and their agency policy before signing anything or spending any money with them.
The Best Types of Clients
If it’s a local business and they want to sign a long-term contract, say yes. If not, keep looking.
Here are two reasons why:
- First, local businesses tend to be more loyal than out-of-town clients.
- Second, most businesses don’t want to deal with monthly invoicing. Sometimes, that can cause issues when trying to reconcile their bookkeeping.
It may sound counterintuitive, but long-term contracts can be significant. If you have clients who will give you consistent work, you won’t have to spend time chasing after new clients often, which means more productivity in your business day.
Another benefit of signing on for the long haul is that you’ll get to know your client’s needs better over time and therefore be able to offer them personalized service, which makes for happier customers.
Which real estate company agents make the best percentage?
In New York, top-earning agents can take home a whopping 70% of their client’s sales price.
While that might sound like a lot, it pales compared to other markets in Chicago; commissions can run as high as 90%.
With average commission rates hovering between 5-10%, choosing your market is crucial when pursuing success as a real estate agent.
To find out which markets are worth your time and where you can expect to see results most quickly, check out Zillow’s Market Hotness Index.
The index ranks markets based on how active they are, so if you’re looking for somewhere with an energetic atmosphere, it’ll be up near the top.
Zillow provides its users with robust tools, including listings from across the U.S., mortgage calculators, and advice on buying or selling a home.
Yes, real estate agents have excellent earning potential. Although they generally require considerable investment on the part of their clients, they can earn up to 5% commission.
Some people choose to be independent contractors, while others opt for working under larger brokerage companies. Working in real estate can be very lucrative and rewarding as well as competitive and stressful at times, so you need to consider your strengths before making a final decision about pursuing a career in it.
But if you believe that you’ve got what it takes, go for it! Just remember that landing any job is more than half of success! Good luck!