What could be more fun and easy than making a mint as a Realtor, right? Poke around attractive homes inside and out, make a nice commission off each one you sell, and call it a day.
Indeed, as it's a commission-based profession, the sky can appear to be the limit, especially in a high-priced market where a small percentage means a lot of cash. Being a real estate agent also a trade that you can engage in full time or part-time, putting as much time in it as you want or have.
So, let's look at some hard facts. According to the U.S. Bureau of Labor Statistics (BLS), the median annual pay for real estate agents and brokers in 2018, the latest full year the BLS is reporting on, that annual salary was $50,300.
Note: There's a reason Realtors is capitalized. Realtors are members of the National Association of Realtors (NAR). There are lots of reasons most successful real estate agents are Realtors, but we'll let the huge, and hugely influential, trade group explain that.
That said, it's also important to know the difference between brokers and agents. Licensed agents typically are required to work with brokers, splitting the commission from each real estate transaction in exchange for tapping into the listing, marketing, referrals, and continuing education resources the agency offers.
For brokers, the BLS says, the 2018 median income for their work operating the agency, which also often includes managing rental properties, was $58,210; for agents, it was $48,690.
Remember, "median" means the midpoint of a distribution range. In this case, half the agents and brokers make less money than that median income and half make more money than that.
Real estate referrals and references
Experience matters, too. The NAR, in its 2019 Member Profile, says the median age of Realtors was 54, with a third more than 60 and only 4 percent under 30 years old. The survey also found that its members with 16 years or more experience had a median income of $71,000, while those with two years or less experience had a median income of $9,300. That's right: $9,300.
How much more income than that agents can make depends on how successful the sales agent is, of course, in securing sellers with properties to list and buyers for them, and getting it all to the all-important closing table, all the while dealing with the competition each step along the way.
And the BLS says that competition is growing. There were 465,500 real estate brokers and agents in 2018 (sales agents outnumber brokers about 3.5 to 1), a number expected to grow by 7% by 2028. That would mean 32,400 more professionals out there vying for the business.
Real estate involves more than houses, of course, and commercial, industrial, and agricultural real estate can be even more complicated. But for the purposes of this article, we'll keep it residential.
The BLS provides a succinct job description for a real estate agent:
- Solicit potential clients to buy, sell, and rent properties.
- Advise clients on prices, mortgages, market conditions, and related information.
- Compare properties to determine a competitive market price.
- Generate lists of properties for sale, including details such as location and features.
- Promote properties through advertisements, open houses, and listing services.
- Take prospective buyers or renters to see properties.
- Present purchase offers to sellers for consideration.
- Mediate negotiations between buyer and seller.
- Ensure that all terms of purchase contracts are met.
- Prepare documents, such as loyalty contracts, purchase agreements, and deeds.
How real estate agents get paid
Agents typically get paid from the proceeds at the final closing of the real estate transaction. A typical percentage is 6%, but that income gets split up between agents and brokers. That commission split often means four ways: the buyer's agent and agency and the seller's agent and agency. (It's easy to see why both agent and broker try to keep the business in-house when they can.)
Take a $300,000 purchase and that typical split, assuming it hasn't been lessened by a savvy seller who knows how to leverage the alternatives to the traditional multiple listing services to negotiate with the listing agent and brokerage into lowering the commission.
Six percent of that selling price of $300,000 is $18,000. Divide that by four, and you get $4,500. That's how much the successful sales agent would get in the commission split for that sale. And that's simple math. Sales agent and real estate broker relationships can be complicated, and there are marketing charges, special deals, referral fees, and more that can affect the ultimate income from each real estate transaction.
How much a house sells for is critical, and that means contending with market conditions. The numbers are always changing, but HSH recently reported that the national median home price was $274,900, and it varies widely. Here's the median selling price from just a few major housing markets and what a real estate agent’s commission would come to for such a sale (assuming, again, 6% of the home price divided by four):