Sat, Nov 17, 2018
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How much do real estate agents make? That is the first question our readers want to know when considering a career in real estate.
As you may know, real estate agents don’t make a “salary” per se. Instead they make commissions on each home they sell. The more homes they sell, the more money they make.
If you are transitioning from a normal 9 to 5 job, not having a guaranteed salary each month can be scary.
For most ambitious real estate agents the opportunity to make an unlimited income based on their hard work is too exciting to pass up.
According to the U.S. Bureau of Labor Statistics the average annual salary of a real estate agent is $55,530. That’s about $26.70 per hour.
Not bad, considering agents get to work when and where they want to for the most part.
Compare that to the average annual salary nationwide for all occupations which is $47,230 or $22.71 per hour.
Here’s a breakdown of the top 5 states with the highest average agent earnings:
New York: $94,410
Making over $50,000 per year with only a high school diploma and some pre-licensing education sounds pretty good to me. How about you?
Above I mentioned that the average (or mean) salary is $55,530 per year. However, the median salary for a real estate agent is only $40,990.
So, why is there such a big difference and which one is right?
Well, if it’s been awhile since your last math class I will try to keep this simple.
Mean: the arithmetic average of a set of numbers.
Median: the numeric value separating the higher half of a sample from the lower half.
According to math experts I consulted, using mean salary is not very accurate. That’s because it is influenced by outliers, such as high earning real estate agents.
For example, each year RealTrends.com releases a list of the top 1000 producing agents. This year the top 10 producing agents nationwide sold over $300 million worth of real estate - EACH! That’s over $6 million in commissions after the broker takes their cut.
To make sure we are all on the same page, let’s recap: Average salary is calculated by taking the total salary earned by all real estate agents nationwide and dividing by the number of active agents.
When some agents make millions of dollars each year it artificially increases the average. This may make the average salary appear to be higher than it actually is. That’s good for the U.S. Bureau of Labor Statistics but not helpful for you.
To give you a more accurate salary estimate we need to look at the median salary. This is calculated by finding the salary that is in the middle of all real estate agent salaries.
So, if you are trying to get a better idea of how much a real estate agent makes, you should be looking at the median salary. According to the U.S. Bureau of Labor Statistics that’s only $40,990 per year.
Now that we know the median salary for a Realtor or real estate agent is $40,990, let’s find out how they earn this money.
When a homeowner uses a Realtor to sell their home, they are usually required to pay a 6% commision on the sale price. This commission is typically split between the listing agent and the buyer’s agent equally.
Then, the agents must split their commision with the brokerage they work for, at about a 70⁄30 ratio.
A brokerage is the company that is responsible for the deals the agent makes on their behalf. For example, a few of the largest brokerages in the United States include Keller Williams, Century 21 and Re/Max.
Real estate agents cannot work independently without getting their broker’s license.
Let’s say you sell your first home as a real estate agent for $221,900 - the median home price in the United States.
The total commision on the sale will be $13,314 ($221,900 x 6% = $13,314). You’ll have to split the commission equally with the other agent. That leaves you with $6,657 before your broker takes their cut.
If your broker takes 30% of this commission, you’ll have $4659.90 left to put in the bank.
Home Sale Price: $221,900
Total Sales Commision: $13,314
Listing Agent Commision (35%): $4659.90
Listing Broker Commision (15%): $1,997.10
Buyer’s Agent Commision (35%): $4,659.90
Buyer’s Broker Commision (15%): $1,997.10
Based on our math, how many homes do you need to sell each month to make $40,990 each year?
$40,990 (Median Salary) / $4659.90 (Typical Commision) = 8.8 homes each year
You’ll need to sell only 8 or 9 median priced homes each year to make the median agent salary.
That’s about one home every 6 weeks! Less than one home every month.
The magic of working as a real estate agent is that you’ll be working with both buyers and sellers in your community. Meaning you could be selling multiple homes at the same time.
I know that you are probably a hard working, ambitious person and you don’t want to earn an average salary. You want to make more.
So, how much could you make if you put in a little extra effort each month? What if that extra effort helped you sell one house every month instead of every 6 weeks?
You’d be making $55,918.80 per year!
And what if you sold two homes per month? That’s $111,837.60 per year!
That would put you in the top 10% of real estate agents nationwide according to the U.S. Bureau of Labor Statistics.
Earnings Recap (Based on median priced home):
$40,990.00 annual salary = Sell 1 home every 6 weeks
$55,918.80 annual salary = Sell 1 home per month
$111,837.60 annual salary = Sell 2 homes per month
A career in real estate is exciting to many people because you can make your own schedule and have the freedom to live the life you’ve always dreamed of. Plus, you can potentially make a significant amount of money from the relationships you’ve built with people in your community.
According to the U.S. Bureau of Labor Statistics the average salary for a real estate agent is $55,530.
However, as we discussed above there is a big difference in the way average and median salaries are calculated. Since the average salary is skewed by agents earning millions per year, it is not very accurate.
The median salary for agents is only $40,990. This is the value you should be using when comparing a career in real estate to other alternatives.
When evaluating how much money you could earn as a real estate agent, you’ll want to carefully look at the value of homes in your area.
Are homes selling for less than $221,900? If so, you may have a hard time earning the median salary. You may need to branch out into other communities or sell more homes to make up for the difference.
If a career in real estate sounds exciting we encourage you to read our guide on how to become a real estate agent. We explain the process from start to finish.