How much money do real estate agents make? According to the Bureau of Labor Statistics, the average real estate agent makes about $45,000 per year. However, do not let that number alone discourage you from becoming a real estate agent. Some agents make six or even seven figures per year, while others barely get by paying their bills with $25,000 to $30,000 a year.
In this article, we’re going to break down why that figure is a little bit misleading and why you should ignore it if you’re thinking about getting started as a real estate agent. We’re also going to look at some of the potential in the real estate industry, the numbers you can realistically expect to make, and how real estate agents actually make money.
After reading this you will have a better idea of how much work and success you’ll have to have as a real estate agent to make the amount of money you want to make from this business. Let’s dive right in.
How Do Real Estate Agents Get Paid?
There are many reasons why you may have chosen to start a career as a real estate agent. One of them is most likely because of the commission checks and the ability to remove the glass ceiling from your income.
Unlike a 9-5 job, your work as a real estate agent has no salary. Your pay depends on your success. While this sounds a bit scary, it shouldn’t be. This is because it gives you unlimited income potential. You can make enough money to really impact your financial future if you become a big success in this industry.
The amount of money an agent makes in a year is determined by several factors. These factors include the number of deals closed in a year, the commission agreed upon and the amount split between the sales agent and brokerage.
How much does an agent make in every deal?
Typically, an agent’s income is based on commission. A commission is payment made to facilitate a successful transaction. In most cases, the commission is based on a certain percentage of the purchase price. However, it can also be an agreed flat fee but this is not common.
When selling a property, there’s a contract between the seller and listing broker, known as the listing agreement. The listing agreement contains the terms and conditions of the sale, including the agent’s commission. The rate is typically negotiated before the contract is agreed upon.
The seller pays the commission unless the buyer and seller agree to split. In most cases, the seller factors the commission in the asking price, so it can be correct to say that the buyer pays the commission, albeit indirectly.
The commission has to be split between the agent and their broker. There’s a common misconception surrounding real estate agents and the agency that fuels the myth that agents take home the entire commission from a single sale. This is not true as agents work under an agency. The commission is split between the agent and brokerage.
The agent takes home a certain portion from the commission, while the rest goes to the agency itself. In some cases, the agent gets half of the money, while in others, the commission is split 70-30. This is different with every brokerage. To understand how the commission is split, let’s look at the parties involved:
- Listing agent
- Listing broker
- Buying agent
- Buying broker
In essence, the agent doesn’t receive the commission directly. The payment is made through the broker, who splits depending on the terms of the contract.
Commission rates range between 2% and 3% of the purchase price on average but do vary market to market. Let’s assume that you make $5,000 in every deal. If you sell one property per month, you’ll earn $60,000 per year. Of course, you have business expenses and costs, such as taxes, insurance, and operating fees, that you should factor in, but this gives you a rough estimate of what kind of effort you have to put in to make an average salary of $60,000 a year.
However, not every real estate agent charges within the 2-3% bracket. Some top-ranking agents charge higher and some new agents may even charge lower. This is one remarkable thing about a career in real estate. You can scale your business with the effort and the right strategies. You don’t have to be stuck within the confines of the average agent.
What happens if the house doesn’t sell? Primarily, commissions are only paid once the home is sold. In some cases, the contract holds the seller responsible for fee even if the deal doesn’t sail through.
As stated before, some agents’ income is based on other terms. They may receive a salary from their brokers. Some real estate brokerage firms employ full-time agents who receive a salary plus a bonus based on their performance and client satisfaction ratings. But this comes with it’s downfalls as salaried agents often times have less upside earning potential in their compensation plans. With less risk comes less reward.
But, how many houses does the average agent actually sell?
Surprisingly, statistics show that the average agent only sells 4-6 houses per year. This is quite shocking. At these numbers and those rates, the average real estate agent may only make about $20,000 a year.
However, don’t let these statistics scare you away because they also factor in part-time agents which brings this number down.
What Income potential does the industry have?
First, you have to realize that there’s the 80/20 rule. This means that 20% of the agents make 80% of the income. You might note this happening in all the markets, where only 20% of the agents make all the money. This might sound a bit weird, but it’s an absolute fact. The principle applies to many aspects of life, and real estate is not left out. This is called the Pareto Principle
Here are a couple of categories I made up to highlight where real estate agents fit in that top 20%. They are:
- Pro-agents
These are typically the agents with a couple of years experience under their belt. A common factor in pro-agents is that they sell between 15-25 houses a year.
Pro-agents are full-time agents who work hard to build their businesses. They are dedicated to their craft and typically make $85,000- $125,000 annually in gross commission income. They have expenses and other costs wrapped into that but still, they are usually established and making pretty good money at this level.
Some rookie agents may fall into this category because they hustle and get caught traction quickly. However, in most cases, pro-agents have quite a bit of experience and have been doing it for a couple of years to get to this level.
- The Rainmaker Agents
Rainmaker agents are also known as the 25-50 deal agents. These agents hustle really hard and put a lot of work into their grind. They also usually have several years experience under their belt and quite a large database of past clients. They are usually very big into cold-calling and or marketing.
Selling 25-50 houses a year involves a lot of prospecting and spending a lot of time out there pursuing new business. The rainmaker agents also get a lot of repeat and referral business from past clients. These agents make between $125,000 and $250,000 a year in gross commission income. It takes a lot of hustle and hard work, but it’s certainly something that can be done.
- Mega Agents
These are the agents whose signs you probably see everywhere. They sell 50 to a few hundred houses a year. They are the top 1% of agents in the real estate market. Mega agents have huge personal brands that have taken their game to a whole new level. They usually carry about 50-100 listings at any one time.
Building such a giant business involves a huge amount of money invested in smart marketing. These agents can make $500,000 a year or more. Some make way more than that, up to the 7-figure income bracket in some markets. Becoming a mega agent takes a tremendous amount of work and a great admin staff, but it’s absolutely possible.
- Team Leaders
Real Estate teams are becoming more popular with time. Typically team leaders are agents that have had a couple of years of experience in the business, had some success, and are now trying to replicate their success through other people. They basically hire other agents to work on their team so they can sell more homes. This role is great for anyone who enjoys managing people and building systems.
Most team leaders who’ve had success will typically make 6-figure incomes. Keep in mind that most team leaders are still in production. They have their personal sales coming in, in addition to the team’s sales. They get a small percentage of their team’s sales along with the personal sales they make.
The downside that comes from having a team is that there are a lot of expenses involved. This is much higher risk than being a solo agent. If your team does not produce you are stuck paying the bills each month. These expenses include leads, admin fees, CRM, and all the systems involved to ensure the business works and the agents have the tools they need to succeed. Be aware, these costs come in every single day regardless of whether your team is showing results or not.
Besides, there’s a lot of responsibility. Remember that the agents coming on board are relying on you to help them achieve their personal success. If you don’t, you’ll let them down, and they’re going to leave you. You don’t want that as each agent requires a tremendous amount of training and investment to get up and running.
- Real Estate Broker Owners
A real estate broker owner actually owns the office. In all real estate agencies you know of, there’s usually a broker that buys that franchise and recruits all the agents working under the agency.
Successful real estate brokers are usually in production anymore. They spend their time recruiting other agents to come work in their brokerage firm. The great part is that they get a cut of income from every agent in their firm.
Being a broker is a really scalable business model. Successful brokers can have up to 500 agents or more under them, making their business very profitable. Smaller brokers may have about 30-50 agents under them and still make a really good income. Becoming a real estate broker comes with a lot of risk and liability. However, if you do it the right way, you can make a lot of money.
How to pick the right brokerage to work at?
When looking for a brokerage firm as an agent, make sure to interview at least three different firms. This gives you a feel of how they work, and you’ll choose the one you feel fits you and your business goals best. Remember, the work of a brokerage firm is to offer you support and legal protection.
While attending the interview, know that the agency wants you. Look at it from a business perspective; they don’t spend much money by hiring you but get commission splits from your work. Hiring you as an agent is profitable for them as long as you do not become a legal liability. So be mindful as a new business person and have a list of questions you can ask during the interview.
Some agents choose to work for big brokerage firms with established names. While this might give them some credibility in the market, also remember to factor in cost and fees when looking for a firm. Do not make a choose based solely on the commission split but rather what training and support you are getting for that split.
Looking closely at the above categories, one factor is common; prospecting. Prospecting is your best bet for a successful real estate business, whether you’re just starting or have been around for a while.
Successful agents spend a significant part of their days prospecting. They don’t wait for business to come to them. Rather, they go out there and meet new people. Whether you choose to cold call, door knock or attend industry events, just make sure you’re putting constant effort to get your personal brand out there.
Also, never underestimate the power of networking. A successful real estate business is built upon relationships. There’s just not any shortcut to this. It doesn’t even have to always be about looking for new business. You can find priceless mentors from your networking activities. You can learn a lot from a successful veteran.
How Much Work Does it Take To Be A Successful Real Estate Agent?
For starters, you need to learn that you have to be entrepreneurial. It’s similar to owning and running a business. You’ll hear a lot of top agents refer to their work as their “business.” It’s better to gain this outlook from the very beginning as no one will be around to push you to achieve your goals.
In all honesty, real estate has its seasons and cycles. There are some months when you’ll bank a lot of cash and others where you’ll survive through a dry spell. Some days, you’ll have little motivation to kick the blanket off and head out to the office or meet clients. This is where your passion and self-drive will come to play.
Owning a successful business does happen overnight. If you get into the game with a short-term mindset, you might fail. This is a marathon, not a sprint. As such, your first few years might be difficult. However, if you outlast the challenges it is likely your business will grow over the years, and your reputation and track record will speak for your business.
Your most significant expenses will come in the form of marketing and advertising. Don’t be deceived that you’ll only need a few yard signs to succeed. Advertising expenses can be huge and eat up a huge chunk of your profits. You can choose how much to invest but you will need to figure out a marketing plan. You need to keep finding new clients and making new deals.
Don’t be afraid to go outside of the conventional methods of advertising. For example, you may choose to invest in organic value add content based marketing such as blog post and YouTube videos. Once people find the content and share it to other people they know, you’ll gain more awareness for your brand.
However, don’t forget the easiest means of advertising for any business, which is word of mouth. You’ll do well if you add value and create a top level client experience for your already existing clients.
As for the hours you need to put in, don’t be surprised when you have 8-12 hour workdays, including Sundays. Especially when you first get started in the business and are in the build stage. This means you’ll need to have a ton of passion for your work and a great work ethic.
You also need to invest a lot of time learning new skills and putting them to the test. One such vital skill is customer service. Your clients are important. If you make them feel so, you’ll be assured of great business over your career. Remember, people buy and sell real estate as often as a every few years. If you serve your clients well as a buying agent, you might be their selling agent when they decide it is time to sell the property. Other than that, this is also a great way to gain business through referrals.
How Soon Can You Earn Your First Commission?
One of the key factors in becoming successful in your real estate career is the time you take to generate your first income. The sooner you earn commission checks, the sooner you can reinvest into marketing your business and improving the client experience.
New real estate agents have costs in licensing, ads and marketing before they close the first deal. If you take longer to get your first commission, you’ll spend more money without getting any form of compensation.
To make your first commission sooner:
- Make sure your current network knows that you’re now working as a real estate agent. Your first deal could come from within your network of family and friends.
- Update your social media to reflect your work. Make sure people know what you do. In real estate secret agents do not get paid.
- If someone mentions their need to move out or buy a property in a random conversation, let them know that you’re an agent.
It might be hard to do at first but remember that you want to get the word out as fast as possible. Within a few transactions, your business will start growing from referrals. You want to create a snowball effect as soon as possible.
You can also find ways to get hourly income in your agency as you wait for your first commission. This can be by doing marketing tasks, clerical work, and advertising tasks. Besides, you’ll be earning an income while gaining and experience in your field. You are killing two birds with one stone. Just be mindful that this could turn into a distraction. If you are serious about becoming a top producing agent make sure to just use this as a stepping stone.
The real estate career rewards the agents who are willing to get out of their comfort zones. For example, many new real estate agents are afraid of dealing with luxury properties. They choose only to sell properties in areas where they’re most comfortable. They fail to realize that selling 20 homes with a $2,500 commission is more difficult than selling two houses with a $25,000 commission. With the latter, there’s a potential to earn more per month. Why? Because those luxury clients will likely refer you more luxury deals.
Note that you should never burn bridges. If a deal with a client doesn’t sail through, keep them in your network. You might sell them a property later on. Some agents work with clients for 2 to 3 years before making money off that relationship. As mentioned before, real estate is a marathon not a sprint. Play the long game.
Money Management Tips for Real Estate Agents
So, after all is said and done, how do you manage your income? You don’t want to spend all that time, energy, and effort to pursue your goals only to blow all that money in the blink of an eye. Your business exists to make profits, and managing these profits is just as vital. Especially as a commission based income professional .
Budgeting for your real estate business can be considered as complex by some because of all the factors that go into achieving success. Some months can be huge earning months while others can be as low as nothing. However, there are a few tips that can help you in streamlining your financial management. They include:
- Budgeting
Budgeting has always been an essential aspect of managing personal finances. Some people may fail to realize that your business will survive over the long term if you can not effectively plan and budget.
An effective budget should include a list of all your income streams and expenses. Business expenses include rent, fuel, telephone, and internet fees, marketing fees, office fees, and more. When you create a comprehensive list, you have an idea of areas you could be overspending and how to cut those expenses and save more.
Budgeting is quite the blueprint for effective money management. If you haven’t created a budget before, create one as soon as you can. You can also include a realistic outlook of the money you expect to make in a year.
- Track your Finances
While creating a budget is the basic rule of money management, it’d make no sense if you didn’t follow it to the letter. In short, you need to write down your income and expenses as soon as they happen. If you want to make it easier, you could support these numbers with recipes or even purchase an accounting system like QuickBooks.
At the end of each year, consolidate this list and compare it with your budget. This helps you see where you went wrong and how to do better in the future.
- Separate Accounts
In business, entrepreneurs are advised to go by the rule of paying themselves first. This means that you ought to create a personal account. This is where all the money that sorts your personal bills goes. This ensures that you won’t be tempted to pay for a night out or a vacation with cash from your business account.
Your personal account will facilitate your daily spending needs. These include groceries and other small expenses. With your business account, you can build a fund that caters to the business’ recurring and variable costs.
- Invest
While the best time to plant a tree might have been 20 years ago, the best time to start investing is now. Saving money without an aim or goal in mind won’t take you anywhere.
Just think about it for a second. Most fortune 500 companies’ stock a decade ago were worth a fraction of what they’re worth today. If you’d bought some of their stock then, you’d probably be much richer now. Smart investing comes second to saving on the path to creating wealth.
As an agent, your first investment option should be real estate in my opinion. This comes with a couple of benefits. They include:
- You already have irreplaceable knowledge of trends and the hottest markets. This way, you can put your money in a property that you know will give you value for your money.
- Your network gives you access to great deals even before anyone else sees them. Since you’ve already paid for listings and other marketing platforms, you’ll be the first one to know about any exceptional deals as soon as they’re in the market.
- You already know the best ways to access financing because you’ve already helped your clients through this process.
Remember, you should invest with a goal in mind. For example, if you want to retire early, you need to figure out how many units you need and how much of a cash on cash return you will need to get. This will give you a better idea on what your freedom number is. As an agent I have found this exercise to be super motivational.
Conclusion
A real estate agent’s earning may be a little bit confusing especially for beginners. On one hand, the life of an agent is glamourized to look affluent and flamboyant. On the other hand, statistics show that real estate agents could be earning much lower than expected. However, this career has some of the greatest potential if you are willing to work hard and overcome adversity. Of course, the field has its fair share of challenges, but no feat is unachievable!