With reality shows glamorizing the real estate brokerage industry, it's easy to assume that real estate agents make piles of money. After all, there are lucrative commissions waiting to be earned on countless properties across New York City. But how much do agents actually make? And how does their compensation structure work? Let's dive into the reality of the real estate agent's financial world.
Do NYC Real Estate Agents Get A Salary?
Many people are unaware that almost all real estate agents in NYC work as independent contractors for their brokerages and earn income solely on a commission basis. A real estate commission is a fee that a brokerage receives for helping a buyer purchase a property or a seller list and sell a property. All transactions go through the brokerage, and the agent receives a portion of this commission based on their agreement with the brokerage.
The portion of the commission that goes to the real estate agent is often referred to as the agent's "split." As agents gain experience and work with more clients, their value to the brokerage increases, and their split typically improves. While there is no official data on splits, Yoreevo estimates the average split in NYC to be around 70%.
Who Pays A NYC Real Estate Commission?
The question of who pays a real estate agent's commission is a bit complicated. Technically, the seller pays the listing broker, who then pays the listing agent and the buyer's broker, who in turn pays the buyer's agent. It may sound convoluted, but that's how it typically works.
Usually, sellers are mainly concerned with how much they have to pay, and buyers usually think they don't pay for their agent. However, at Yoreevo, we believe the buyer is actually paying everyone. They're the ones writing the big check, as that's where all the money comes from!
Commissions are agreed upon in the listing agreement between the seller and the listing broker. The listing broker also agrees to split the commission with the buyer's broker if the buyer has one. This split, offered to the buyer's broker, is known as the "co-broke." In NYC, under the REBNY Co-Brokerage Agreement, all member firms automatically split the total commission 50/50 with any other member firm, unless the seller specifies otherwise.
Commissions are usually calculated as a percentage of the purchase price.
How Much Do NYC Real Estate Agents Make?
According to information from New York's Department of Labor, the average real estate agent in NYC earned around $86,000 in 2019. However, some agents are making much more. Even on properties listed for eight or nine figures, commissions can still be around 2.5% or 3% per side, resulting in individual commission checks for well over $1 million!
It's important to keep in mind that the average real estate agent in NYC only closes 2-3 deals per year. This aligns with the data above. With 2.5 deals/year, a 70% split, and an average commission of $50,000, an agent would make about $87,000.
How Can You Save on Real Estate Commissions in NYC?
Obviously, real estate commissions involve a significant amount of money, and every dollar paid to an agent comes out of the pocket of a buyer or seller. So, how can you minimize commissions? Here are a few strategies:
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Negotiate the Commission: Before choosing an agent to list your home, interview multiple agents and don't be afraid to ask for a discount on the commission. While some agents may agree to reduce the commission, it depends on factors like the price range of your home, how quickly it's expected to sell, and the brokerage the agent works for. Buyers can also negotiate their agent's commission.
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List For Sale By Owner (FSBO): If you're confident in showing your home and negotiating with potential buyers, listing your home as a FSBO is an obvious way to save on commissions. Flat-fee services allow homeowners to list their properties on the Multiple Listing Service (MLS) used by local real estate agents. By doing so, your listing will be distributed to buyers' agents and major real estate websites. Sellers only pay the commission for the buyer's agent.
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Ask for a Commission Rebate: Since commission rates are set by the seller and listing broker, a commission rebate is the only way a buyer can control how much their agent gets paid. With a commission rebate, your broker provides you with part of the commission they receive for your deal. At Yoreevo, we provide the highest rebate without the need for negotiation. Whether you're just starting your search or have questions about a specific property, we're here to help.
Remember, these strategies can help you save money, but it's crucial to find a reliable and experienced agent who can guide you through the real estate process successfully.
Flowchart showing how a buyer broker gets paid
Line chart showing average NYC real estate income from 2000 to 2019
By understanding the compensation structure and considering these strategies, you can make informed decisions when it comes to real estate agents and commissions in NYC. It's essential to balance your financial goals with the expertise and trustworthiness of the agents you choose to work with.
