According to the U.S. Bureau of Labor Statistics, the median annual salary for real estate sales agents was just under $49,000 in 2018, while real estate brokers have a median wage of $58,210. The average annual earnings for agents was slightly above $41,000 in 2019.
However, it’s interesting to know that the variance and statistics distribution are pretty wide, with the lowest 10% earned less than $25,000 annually but the highest 10 percent earned more than $112,000.
These variances of income can be caused by many factors from location/state, your level of training, but especially how many hours you put in. Real estate agents are often paid based on commissions, so how many transactions you can close will play a big factor. Since commissions are paid based on a percentage of the house’s price, real estate agents in areas with more expensive properties (i.e., New York or Hawaii) will earn more.
Understanding Real Estate Commissions
There are three ways a real estate agent can get paid: on wages, which are very rare in the U.S., on wages+commissions, where you’ll get (usually relatively low) salary and then commissions on top of it, and last is to work solely on commission.
The most common model is exclusively on commission, which basically means if you don’t sell a house, you won’t get paid at all. Usually a real estate agent will get a commission of around 6%, but in practice this is a little more complicated.
Let’s use an example to illustrate this. Let’s say you are an agent and you just sold a house worth $1,000,000 and your agreed commission is 7%. However, another agent is involved in the sale (this is a pretty common scenario), so you split that commission to 3.5% each. In this case, you’ll get $35,000 in commission.
However, there’s another factor involved: your broker. A licensed real estate sales associate agent in the U.S. can’t directly sell a property unless they are employed by a licensed broker. Here, the $35,000 will first go to your broker, and how much you actually get will depend on your agreement with the brokerage firm. This is often referred to as the “split”. Usually, this split will be 50/50, but this will depend on many factors including how you negotiate with the firm.
Let’s say that in this case the “split” is indeed 50/50, so you’ll get $17,500 as your earnings. Here, we should calculate our expenses from the marketing cost for the house (which can be our own expense or covered by the brokerage firm), our phone bills, gas and insurance for the car, post-licensing education to maintain our licenses, and so on. Let’s say that the overall expenses is $7,500, so you get $10,000 in nett earnings.
Negotiating Commission Split
As a real estate sales agent, commission split will play a huge factor in determining your annual income. The average commission splits in U.S. real estate can range between 50/50 to 70/30 depending on many different factors.
Some real estate brokerage firms offer non-negotiable fixed commission split. For example, Keller Williams offers the 64/30/6 split where 64% goes to the agent, 30 goes to the Keller Williams local Market Center, and 6% goes to Keller Williams’ main office. There are also realtors that offer 100% commission split to the agent, where the agent can keep all of their commission but will need to pay a certain fee after each transaction.
So, before you decide on working with a specific broker, check or ask around whether you can negotiate on their commission split.
It’s also important to know that there are two different types of commission splits:
1. Fixed Commission Split
This type of commission split means that the commission distributed to the broker and sales agent will remain the same and not tied to sales goals or other factors. Commonly in this case, you should expect a commission split of around 60/40 or more.
In a fixed commission split scheme, no matter how many houses you sell or purchase in a year, you will get the same commission percentage. According to the National Association of Realtors’ latest report, 36% of its members are compensated under this model.
This model has its own benefits and disadvantages. Beginner sales agents might appreciate the predictability and certainty of the scheme, and not feel pressured with demanding sales milestones. On the other hand, agents that can sell a lot of houses in a year might prefer to get more compensation. This is where the next commission split type comes in.
2. Graduated Real Estate Commission Split
Contrary to the fixed model above, here the agent will get a higher percentage as they reach certain sales or production milestones. For example, at the beginning of the year we will start with 50/50 commission split, and after selling, for example $1,000,000 the percentage will increase to 60/40. If we can reach 5 million dollars in sales, this number can increase to 80/20.
This model might have a limit or cap, so when the agent reached a certain number, they will essentially get 100% commission (but will need to pay a transaction fee).
This model can be very rewarding for agents with high productivity, but on the other hand can hurt inexperienced agents since typically the commission for the first few houses will be lower.
It’s also important to consider that in the real estate business, years of experience does count. According to NAR, the median income for realtors with 16 years or more experience is $71,000 in 2017, compared to those with 2 years or less experience that only had a median income of below $10,000.
So, being a real estate agent can be a very rewarding job with a lot of potential, but will need to be patient and have the perseverance to build your skills and experience.