Buying or selling a home is one of the most important financial transactions many people make in their lifetime. Realtors work with buyers and sellers during this process, providing their clients with the best deal possible. A lot of things go into the job, and there are a lot of things to consider when determining how much real estate agents earn.
How do real estate agents make their money?
Most real estate agents work on commission and receive a fixed percentage of a home’s total sale price at the end of the sale. Therefore, an agent’s annual income may vary depending on the number of homes they sell. Market fluctuations and full-time versus part-time hours affect the income range, but there are other key factors that affect how real estate agents make their money.
Astute negotiation skills maximize the value of a sale for clients and set the realtor apart from competitors. Additionally, real estate negotiation skills take on a whole new meaning in understanding the emotional components of both parties in any transaction. Effective communication and response is a real estate agent’s job when it comes to assessing the motivations of their clients and those of the other party.
Experience can be one of the best indicators of a real estate agent’s income. Anyone can search for real estate listings online, but an experienced, multi-licensed real estate agent will likely know more about local neighborhoods and building codes, making them more marketable to clients.
An experienced real estate agent should have no problem checking all the fine details and marks on a sales contract, which also maximizes the value of the transaction and, therefore, their commission.
How much do real estate agents earn?
This question covers a considerable range and therefore has a few different answers. As of May 2021, the United States Bureau of Labor Statistics estimates that the average annual income of real estate agents is $61,480. That’s $29.56 per hour, based on a standard work year of 2,080 hours. However, most real estate agents have considerable control over their hours, and their reliance on commissions results in real estate agents having a wide spread of income.
Commissions usually range from 5% to 6%, and the amount can be split between different parties based on referral fees. The median US home sales price for 2021 was $346,900. That leaves realtors between $17,345 and $20,814 per home sale.
According to this same report from the United States Bureau of Labor Statistics, 10% of real estate agents earned less than $28,270. The bottom 25% earned $35,880 or less. The median income was $48,340.
Anyone wondering how real estate agents get rich should look at the top percentiles of this report. The top 25% of real estate agents bring in at least $75,940 per year, while the top 10% earn $102,170 per year.
Earnings from high-level real estate agents
The most lucrative real estate agents work in oil and gas extraction, with an average annual salary of $122,760.
Most people probably agree that location is key in real estate agent income. The best states for real estate agents are:
|State||Average annual salary|
Of course, agents must balance this increased income with the cost of living and various state income taxes. Although moving to a new location to increase their income may not necessarily be the right decision for all realtors, it is a potential option on the table.
Is it worth it to be a real estate agent?
The numbers don’t lie, and these financial statistics certainly make the profession seem worthwhile. However, there are additional aspects to take a closer look.
Real estate agents can have significant earning potential, but market fluctuations can have a direct impact on that income. Agents only make money when they sell homes, so any downturn in the housing market could put them out of work. A prime example of this occurred during the property market crash of 2008, with over 10% of real estate agents permanently losing their jobs.
Additionally, being a real estate agent comes with upfront costs, such as license and franchise fees, business and home office equipment, marketing materials, and travel. However, the IRS recognizes real estate agents as statutory nonemployees – or “self-employed employees” for tax purposes. Therefore, many, if not all, business expenses may be tax deductible.
Commercial real estate
Agents can veer into commercial real estate, a division of industrial real estate, and land subdivision, which divides a large undeveloped lot into smaller lots for development. These real estate specialties come with an increase in commission over standard real estate commissions.
Full-time commercial real estate agents earn an average of $165,940. However, the increase in work-from-home arrangements is having a significant impact on commercial real estate and could make the decision to enter the space potentially risky.
Someone starting out as a real estate agent has a lot of room for improvement. Some will become brokers themselves, managing other real estate agents and generally earning more based on their experience and seniority in the business. In May 2021, brokers had an average annual salary of $86,490.
A career as a real estate agent can be lucrative, but a lot depends on how hard an agent is willing to put in. Skillful and probably wealthy agents usually match certain skills and personality traits, which leads to their success. Agents who don’t communicate well, display a positive work ethic, and fail to build rapport with their customers and those on the other side of the deal are unlikely to discover their full potential financial.
Information is accurate as of May 19, 2022.
Our in-house research team and on-site financial experts work together to create accurate, unbiased and up-to-date content. We verify every statistic, quote and fact using trusted primary resources to ensure that the information we provide is correct. You can read more about GOBankingRates processes and standards in our Editorial Policy.