As a new real estate licensee or someone considering a career in real estate, it's crucial to understand the ins and outs of real estate commission. After all, this will be the primary source of your income. While some brokerages are transitioning to a salary-based structure, the majority still operate under a commission-based system. So, how much can you expect to make as a real estate agent? Let's delve into the details.
Step 1: Negotiate Real Estate Commission Splits
Your commission split with the brokerage is typically negotiated at the time of signing up. Initially, most brokerages offer a standard commission split to new agents. However, as you gain experience or achieve certain production thresholds, your commission split is likely to increase.
In a nutshell, here's how the commission split works. Let's say you sell a $300,000 home, and the average agent commission in your area is 6%. The commission gets divided equally between the buying and selling agents, with each receiving 3%. If you represent both the buyer and the seller, you get to keep the full 6%.
Now, let's assume you're representing only the buying side. In this case, the 3% commission amounts to $9,000. However, you'll need to share this with your broker. If you're on a 60/40 split, your take-home amount would be $5,400. Keep in mind that, as an independent contractor, you'll be responsible for your own taxes. The figure mentioned is pre-tax and pre-expenses.
Step 2: Estimate Your Earnings Based on Trends
According to the National Association of REALTORS® 2020 Member Profile, the median yearly income for REALTORS is around $49,700. However, those with 16 or more years of experience earn nearly $86,500 per year. Additionally, 27% of REALTORS earn more than $100,000 annually.
The income optimism continues, as indicated by agents who responded to our survey in the 2020-2021 Real Estate Agent Income Guide. The majority of both real estate agents and brokers reported earning more from the real estate business in 2019 compared to 2018.
Step 3: Calculate Your Commission Based on Sales
Since your real estate agent salary is commission-based, your earnings will depend on the number of sales you make. Before diving into this field, it's important to research your target market. How many homes are being sold each month? How many agents are already present in that market? Is it a large enough market to help you achieve your financial goals?
In a large metropolitan area, you'll likely find plenty of business opportunities. However, let's say you're interested in selling real estate in a small coastal community in North Carolina. In such cases, factors like the number of monthly sales, competition from other agents, and the average home price in that area will impact your real estate agent salary.
Agents in larger metropolitan areas tend to earn higher salaries, primarily due to the greater number of homes being sold and the higher average prices of those homes. On the other hand, agents in small communities can do well if they specialize in high-end luxury real estate sales.
Step 4: Boost Your Real Estate Commission Salary by Expanding Your Knowledge
One of the best ways to increase your earning potential as a real estate agent is through continuous education. Consider earning specialist designations for luxury home marketing or assisting military families with relocations. By developing a specialty niche, you'll be able to cater to a wider pool of potential buyers. For more information on boosting your real estate agent salary, check out our article: 5 Ways New Real Estate Agents Can Boost Their Salaries.
Are you ready to embark on a successful real estate career? Download our free guide: Is a Real Estate Career Right for You?