Many people are attracted to the real estate profession because of the high earning potential and the freedom to create their own schedule. If you're considering a career change, you've probably wondered how much money real estate agents make and how they get paid.
Real estate agents work on commission, which means they earn a percentage of the listing price they help their client buy or sell. In this article, we'll explore everything you need to know about starting your real estate career and what you can expect in your first few years as you build experience.
What's the Average Real Estate Agent Salary?
The average salary of real estate agents can vary significantly due to the commission-based nature of the profession. Here's a breakdown of the average salary in each state:
According to ZipRecruiter, the average real estate agent salary is $86,356. The range for salaries is from $64,446 in Arkansas to $98,516 in Washington. However, it's important to note that many real estate agents are part-time professionals who earn less than these averages. The commission for real estate agents generally falls between 5% and 6%, which is split between the listing and buyer's agents.
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What Factors Affect How Much a Real Estate Agent Earns?
If you're considering a career as a real estate agent, it's important to understand the factors that can affect your earning potential. Here are the key things to keep in mind:
- Number of homes sold vs. home price: Your earning potential as a real estate agent depends on the number of homes you sell and their price. In a market where homes have lower values, you may need to focus on making more sales. On the other hand, if you're working with higher-priced homes, you may make fewer sales but earn more from each transaction.
- Marketing capabilities: As a new real estate agent, investing time and money into marketing yourself is crucial to finding clients and making connections.
- Experience: Building a trusted reputation as a real estate agent takes time. Generally, the more experience you have, the more money you can expect to make.
- Brokerage fees: Real estate agents work with brokerage firms, and a percentage of their commission goes to the brokerage. On average, brokerage firms take around 40% of the commission.
How Much Do Real Estate Agents Make in Their First Year?
The first year in real estate is often the most challenging for most agents. Building experience and reputation takes time, and it can be difficult to find clients. The home buying and selling process can also take several months.
Real estate agents in their first year can expect to go nine months or more without earning any income. It's advisable to have some savings or a secondary income stream until you can earn enough solely from your real estate career.
One of the best ways to start your real estate journey is by joining a team or brokerage that can provide you with leads and help you gain more experience. A positive team reputation can also build trust within the community and generate more leads.
When I first started as a Realtor in Raleigh, coming from Boston, I had no connections in the local area and no idea how much money I could expect to make in my first year. In that first year, I closed three transactions and made $14,372.13 after paying my broker their share of my commissions.
Living on $14,372.13 was nearly impossible, especially when you're also spending money on marketing your real estate business. However, in my second year, I closed 16 homes, and a year later, my brokerage closed over 50 homes. Now, my real estate brokerage makes the money, and I pay myself a salary.
Do Real Estate Agents Make Money by the Hour?
Real estate agents do not make money by the hour; they earn money through commissions from the houses they sell. However, the more time and effort you invest in marketing yourself, networking, and providing excellent customer experiences, the more success and money you can expect.
To make a living wage as a real estate agent, it's typically necessary to pursue real estate full-time rather than part-time.
How Much Do Real Estate Agents Make per House?
The commission structure and percentage vary for every house a real estate agent sells. Location and whether there's an agent bonus also affect the amount of money you earn per home.
Here's a typical breakdown:
- A listing real estate agent charges 6% to sell a house, with the commission split between the buyer's agent.
- Both real estate agents' 3% commission goes to their respective real estate brokerage.
- The brokerage writes a check to the real estate agent, typically taking around 40% of their commission as agreed upon.
When I started as a Realtor, my brokerage took 36% of each commission check. However, I felt that they weren't adding much value, such as providing leads or supporting closings. So, I made a change and joined a brokerage that charged me a flat fee per transaction before eventually opening my own brokerage, Raleigh Realty.
How Do Real Estate Agents Get Paid?
Real estate agents can represent the seller, the buyer, or both in a real estate transaction. The amount an agent is paid depends on the agreed-upon commission between the agent, seller, buyer, and real estate brokerage.
As mentioned earlier, both real estate agents' commission goes to their brokerage, and then the agent is paid for the sale by their brokerage. Each agent's compensation for selling a home is based on factors such as the sales price, commission split, brokerage split, and any expenses incurred during the transaction.
What Kinds of Expenses Do Real Estate Agents Have?
Many people underestimate the expenses and overhead that come with being a real estate agent. Starting a real estate career requires a significant upfront investment. Unlike typical office jobs, where resources are provided by the employer, as a real estate agent, you need to find and pay for those resources yourself.
Here are some expenses to consider:
- Office space
- Health insurance
- Office supplies
Additionally, you're likely to incur transportation-related costs, such as gas and car repairs, as meeting clients and viewing homes often involves a lot of driving.
One major expense that people often overlook when starting their real estate careers is the cost of being a Realtor. You'll need to pay for:
- Real estate education
- Real estate license
- Fees for joining the MLS and other necessary organizations
- Continuing education
These expenses are ongoing and can quickly add up to thousands of dollars.
At Raleigh Realty, our largest expense is technology, which serves as our primary form of marketing. We've invested over $30,000 in our website and over $10,000 in online marketing. Our website is our top lead generation source, so it's essential to allocate a significant portion of our earnings to continually grow and improve our online presence.
Starting Your Career in Real Estate
Don't let the numbers deter you from pursuing a career as a real estate agent. Hard work pays off, and with dedication and proper investment of your time, you can achieve success.
Here are some recommendations if you're thinking about becoming a Realtor:
- Join a well-established team: Connections are critical in real estate, and being part of a respected team can help you build a positive reputation. Learning from successful colleagues can also contribute to your growth.
- Consider new construction sales: Inventory for new construction homes can be more reliable, and these homes may offer larger commissions.
- Start part-time: The real estate sales cycle can be lengthy. Working part-time can slow your growth, but if you're struggling with bills, it can provide you with stability until you're able to earn enough solely from commissions.
- Become a subagent: Working with listing agents as a subagent can help you gain more experience and build your client base.
Starting a career in real estate, especially in the first year, may seem daunting. However, armed with the knowledge of how real estate agents make money and our tips, you can embark on a fulfilling and profitable career.
