A real estate agent is an intermediary who helps real estate sellers and buyers to connect and complete the sale of a property. A real estate agent puts effort to find buyers for someone who wants to sell a house. Similarly, the real estate agent also helps someone wanting to buy a home in finding one that met their requirements. A real estate agent would not just connect buyers and sellers but supports them until the transaction is complete. In return for doing all this work, the real estate agent gets a commission from the buyer, seller, or both.Real estate agents don’t usually get a salary but earn money from commission on property sales.
The commission a real estate agent charges depends on various factors. On average, it is 6%[i] of the transaction value. Since the seller is receiving the money, usually the seller pays the commission. Where a property is in high demand, the buyer may be asked to contribute to the commission. The 6% commission may not go to one person. It may have to split between different people.
How much the agent earns?
There may be two agents in a transaction, one the listing agent who lists the house for sale. The other is the buyer’s agent who guides the buyer to buy the property. The 6% commission is split between both the agents. Real estate agents in the US have to work with a real estate broker who actually receives the money. The broker usually takes his part of the commission. Usually a 60:40 divide, where the agent gets 60% and the broker 40%. This can vary depending on how experienced you are. The more your experience, the higher is your share.
As a real estate agent, if you list out a property for sale and close the sale for $100,000, you will get 3% of the sale value since you are the listing agent. This would be $3,000. Of this, 40% goes to the broker, which means you end up with $1,800. In case you are a broker yourself along with being a real estate agent, you can keep the entire $3,000. If you are agent for both seller and buyer, then you can keep the entire commission, which would be $6,000.
You must remember that you will receive payment only after the sale is closed. This may take 30 to 60 days. As a real estate agent, you will not be working only on one sale but with multiple clients. Each sale will earn you a commission. That is how real estate agents make money.
How much do they actually earn?
If you were wondering how much a real estate agent earns every year, you will find the following statistics interesting.
As per the statistics[ii] from the Bureau of Labor Statistics, as on May 2018m a real estate agent earns $61,720 every year.
The Bureau also shows an analysis of earnings based on percentiles. As per this, the following are details of earnings.
- The top real estate agents earn on average $112,610 per year.
- On the lower end, real estate agents earn $24,650.
- The median earnings as per this analysis is $48,690.
The statistics also show that real estate agents who work in recreation and amusement earn annual wages of $190,650, which is the highest for this profession.
There are state-wise statistics that are interesting and help you understand how much a real estate agent makes in your state.
- The highest number of real estate agents are in Florida (18,480), they earn $58,730 annually on average.
- The next highest is Texas that employs 17,580 real estate agents who earn on average $70,520 annually.
- The state where real estate agents get the highest commission is New York. This is not surprising since the state has the highest real estate prices. On average, a real estate agent in New York can earn $116,460.
- Rhode Island is where real estate agents earn the second highest pay at $84,280.
- The metropolitan areas in the country, where real estate agents can earn the highest are:
- Midland in Texas – $111,560
- New York-Newark-Jersey City-NY-NJ-PA – $104,180
- The Eastern Wyoming and East Central Illinois are areas where real estate agents can earn the most in a non-metro area. They earn on average $84,330 and $83,970 respectively.
The above clearly shows that location affects the earnings of a real estate agent. Real estate agents can hope to make a decent earning and can even hope to earn very good money from this business.
How a real estate agent can maximize earnings?
A real estate agent can maximize his earnings in the following ways:
- The secret to earning big money is to focus on locations that have a higher market value.
- It makes sense to focus on many small transactions, rather than put too much effort to maybe sell one large property.
- Multiple transactions are needed to make money. A good real estate agent works with many clients simultaneously to increase the chances of earning money.
- The more effort and time put in, the more potential for earnings. While some people treat real estate work as a part-time job, if you want to make a lot of money you need to consider it a full-time vocation.
- With experience, you can become a real estate broker. That will help you earn more money.