Wondering about, “how much do real estate agents earn?” I believe either you are a contractor or a homeowner. Next you are likely to involve a real estate agent in the sale process of your house. The real estate agent payment is based on commission form. This is basically service fees for their role in the selling or buying process. Which is usually a certain percentage of the house or property’s sale price. The average commission rate is between 5% and 6%. The commission is covered by the seller.
The following blog will outlay the details on how the sale commissions are divided among the real estate agents and their brokers. Also, we will cover the factors that play an important role in the sale process for real estate agents’ earnings.
Before knowing details of real estate agents’ earnings, you should know the basics of the roles involved in the house retail industry.
Real Estate Agent vs. Broker vs. Realtor
There are four people who work as medians between the sellers and buyers of the house. It is mandatory that the real estate agents hold a valid license to work with their respective broker. The broker has to follow national and real estate laws. The broker should ensure that the real estate agent abides by those laws.
The overall commission earned is divided between buyer’s agent and the seller’s agent and their brokers. The commissions are received only by the broker by law, who further pays the agents their commission percentage. The agents however are not authorized to work independently without a broker. The agents are not entitled to receive commissions independently.
Agents are either Listing agents and selling agents. Listing represents home sellers. Named so because they are responsible for creating and promoting the listing for a home on sale. The selling agents represent the purchaser’s interests and called as buyer’s agents
The real estate agents and brokers both can be called as realtors. Conditionally, they should be members of the National Association of Realtors (NAR). They have to abide by the NAR code of ethics.
How are real estate agents paid?
Before getting into details of the payment process – one latest, 2024, lawsuit settlement by the National Association of Realtors (NAR). It has decreased seller and buyer agent commissions or fees.
For each home sale price the real estate agents receive a certain amount of the sale percentage as commission. This commission is divided between the listing agent and the buyer’s agent, and their respective brokerages. There are instances where some agents charge flat commission fees or they are working with a brokerage firm for salary. Normally the agents get paid in the form of commission. These commissions are based on the final sale price of the house on sale, and their as their performance indicator.
How are commissions structured?
Let’s assume a house sells for $300,000. It has a commission rate of 6%. That would be $18,000 in total fees. The listing broker then shares this with the buyer’s broker. So each broker gets $9,000, an agent might take home between $4,500 and $7,200. This is gross earnings before taxes and other expenses are taken out.
This is normal protocol of commission earning and distribution. But different brokerage firms and real estate agents may have different percentages. This is based on their market value and experience.
What Factors Influence a Real Estate Agent’s income?
Although the commission percentages and process is same for almost all agents. But, different factors can influence market value and earning of one agent to another. You wanna the salary for a real estate agent, let’s say it is $100,000 per year in North America.
But, you know some agents make way more than that. This depends on what market they are working in. Then count the number of years in their experience. And ofcourse number of sales and percentage share of the broker in the agent’s commission.
Market Location and market conditions
The market and its conditions have a huge influence on an agent’s income. Areas that are posh and expensive have properties high on buying and sale demand value. Thus, the agents working in active and highly paid markets earn exponentially more.
Those working in lesser active markets earn comparatively lesser. Also, states which receive a higher volume of new residents. Because these areas are commercial hubs, they have properties at high sale prices. So the agents make way more money than average agents.
Experience
The more experience an agent has on their portfolio, speaks for their specialization in the field. Then, comes agents’ forte in certain niches like some are more experienced to sell luxury homes. Some have more experience in relocation. So, accordingly their commissions percentages also hike up.
Sales volume
It goes without saying that if a real estate agent has more transactions frequency and a higher sale volume in their schedule, they are earning more. They have a high number of successfully close deals on a monthly basis. So they have greater earning and higher market value.
Brokerage share of percentage
The percentage share a broker has with their respective real estate agent has an obvious impact on their take-home cut. Different agents have different split arrangements with their brokerage firms. Depending upon the commission percentage agreed by the firm, some agents receive higher.
These fees are in exchange for more support and resources from their broker. Ofcourse, this is contingent upon the agent’s experience, market value, and sales frequency. Similar is the case with the buyer’s agent. It depends on the negotiation with their client for a more favourable commission.
Real estate agent expenses
Like any other business, real estate agents have cost considerations to be evaluated against their supposed earnings. The agents spend on their licensing, education, and training. These are mandatory to keep them updated on market trends. These are testimonials that the agent is well equipped with the latest laws and regulations. These membership fees could be for Multiple Listing Service (MLS) and local real estate boards. This helps them get access into property listings and lead generation.
Other costs include marketing and advertising costs. The advertising costs further include advertisement done on social media platforms and or sending postcards to their clients. These advertisement types however depend on the agent’s target market.
Then there are Operational costs. These are to pay for renting office space, transportation cost, and payment of office equipment. This a certain percentage of profit should be earned so the earnings are higher than the expenses.
Conclusion
Most real estate agents earn in commissions form. These are paid directly to brokers first, then the transactions are settled. A single commission is typically split several ways among the listing agent, the listing broker, the buyer’s agent, and the buyer’s agent’s broker. The percentage of commission divide, among parties, is contingent on the agreement the agent has with their sponsoring broker.
Nowadays, the Real estate agent compensation is susceptible to various changes because of the DOJ’s antitrust actions and the NAR’s 2024 settlements. As the lawsuits reach a legal conclusion, , the agents, brokers and buyers/sellers will have to follow new compensation structures for real estate agents.