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Real estate agents have the potential to earn a substantial income each year, depending on their skills and the state they operate in. The amount of money an agent makes can be influenced by various factors, including the state's real estate market, the agent's experience, negotiation abilities, and the types of properties they deal with.
According to the U.S. Bureau of Labor Statistics, the average annual wage for real estate sales agents was $49,040 as of May 2020. However, it's important to note that these figures can vary significantly depending on the state, as home prices and commission percentages play a major role. It is interesting to know that a college degree is not mandatory to become a real estate agent, but a state license is required.
In this article, we will delve into the average yearly salaries of real estate agents in each state, the factors affecting these salaries, how commission works, agent fees, and the distinction between agents and brokers. So, let's explore how much money an agent makes per year.
How Much Money an Agent Makes Yearly (By State)
The earnings of real estate agents depend on the state they operate in and the commission rates prevalent in that state. Some states offer lower commission percentages, while others offer higher percentages. Ultimately, the state's real estate market and home prices have the most significant impact on an agent's earning potential.
Please note that the information provided is based on the most recent data from the U.S. Bureau of Labor Statistics, and the actual figures may vary when the official reports for 2021 are released.
Real Estate Agent Salaries per Year in the U.S.
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It's important to consider that the cost of living also varies among states. A salary of $50,000 in a state with a lower cost of living could provide a more comfortable lifestyle compared to a state with a similar average salary but a higher cost of living.
Commission Basics
Real estate agents are typically paid on a commission basis, which means they receive a percentage of the selling price of a property. Since there's no base hourly pay or salary, agents only earn income when they successfully close a sale. Earnings can be irregular, especially for beginner agents who may go weeks or even months without a sale.
A real estate agent's commission is usually around 5-6 percent of the home's sale price. For example, on a $350,000 sale, the commission would range from $17,500 to $21,000. However, it's important to note that the agent may not receive the full commission amount, as it is often split between the buying and selling agents involved in the transaction.
If the selling agent represents both the buyer and seller as a dual agent, there is no commission split, as they are the sole agent representing both parties. The commission is usually paid by the seller and settled at the closing of the home sale. It is separate from the closing costs and typically ranges from 2-5 percent of the home's sale price.
Negotiating Commission Fees
Although commission fees are technically negotiable, agents may not always reduce the commission percentage. Attempting to impose uniform commission rates is actually a violation of federal antitrust laws. Established agents who sell numerous homes might be less likely to negotiate, while newer agents or agents in competitive neighborhoods may be more open to negotiation. Sellers can inquire with the listing agent about the possibility of reducing the commission, but it's important to remember that a lower commission will also affect the buyer's agent.
Broker Fees
In addition to the commission split, agents also have to consider the fees charged by the broker they work under. Brokers typically take a share of the commission as specified in the agent's agreement, which can range from 30-70 percent. On average, after splitting the commission with other agents and the broker, a real estate agent typically walks away with 1.25-2 percent of the commission. However, the exact percentage can be negotiated between the agent and broker, and high-performing agents may be able to secure a larger share.
Brokers provide various services to agents, such as office space, administrative staff, lead generation, marketing materials, and training classes. It's crucial for agents to carefully select a broker based on the services offered, fees, reputation, and other factors.
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Fees for Agents
Real estate agents often have upfront fees to cover before closing a transaction. One major fee is the MLS (Multi Listing Service), which provides agents with essential information about real estate properties. The annual fee for MLS access is approximately $400.
Agents also incur a broker desk fee, which is the cost to affiliate with a particular broker. This fee can range from $100 a year or more, depending on the brokerage. Additional annual fees include membership fees for the National Association of Realtors and the local real estate board, which can total around $1,000 per year.
Advertising Fees
Advertising expenses can vary greatly for agents. Some may choose to advertise on social media for free, while others may opt for paid ads. Advertising can be effective but often comes with a cost. Apart from social media, agents can advertise through newspapers, flyers, mailers, event sponsorships, and more.
Agents may also invest in their own personal website and hosting for further advertisement. The advertising fees to establish an online presence can range from $1,750 to $3,500 per year, depending on the depth of advertising and the chosen method.
Business cards are another cost that agents need to consider. The price can vary based on factors such as professional headshots and the type of cardstock used. On average, business cards cost around $500 per year, but agents have the flexibility to shop around for better deals.
Open houses are a popular way to showcase properties to potential buyers. Fees associated with open houses include signage, snacks, drinks, and other amenities. Expenses can vary significantly based on the agent's choices regarding refreshments and the quality of signage. Advertising costs alone can significantly impact an agent's overall income.
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Real Estate Agent Duties and Responsibilities
So, what does a real estate agent actually do? Their primary responsibility is to assist clients in buying, selling, and renting properties. When a seller approaches an agent to sell their home, the agent will discuss a listing agreement and take photos of the property to create a detailed listing. Agents use their expertise to determine a competitive and profitable selling price for the property. They also address any potential issues or repairs that may arise during the inspection process.
Agents handle all aspects of the sale, including negotiations with other agents representing interested buyers. Their duty is to maximize the benefits their clients receive from the transaction. On the other hand, buyer's agents help buyers find homes within their budget and preferences. They show properties, provide feedback, negotiate prices, and assist with the home buying process. They may also offer referrals for inspection services and recommend brokers for specific programs like First Time Home Buyer Programs.
Types of Agents
The terms "real estate agent," "Realtor," and "broker" are often used interchangeably, but there are distinct differences between these professions. All Realtors are real estate agents or brokers, but not all real estate agents or brokers are Realtors. Realtors are agents or brokers who are members of the National Association of Realtors (NAR). They have to pass additional exams and adhere to higher professional standards. Brokers are real estate agents who have undergone additional training, courses, and exams. Unlike agents, brokers can work independently and even hire other agents to work under them.
Real estate can be a lucrative and rewarding career, but it takes time to establish oneself and gain experience. As agents build their reputation and clientele, their earnings are likely to increase.
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