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To make the big bucks as a real estate agent, agents need to embrace hustle and hope for quite a bit of luck. How much an agent makes will depend on how many homes they manage to sell or find buyers for, what kind of commission splits they negotiate, and what types of homes they help sell.
It’s hard to pin down an exact amount that real estate agents make because where they work also plays a major role in their income. Homes in a high cost-of-living area usually lead to much larger transactions by default, since real estate agents make a commission based on the sale price of the home they represent or help a buyer purchase.
Let’s examine how much commission real estate agents make and how they get paid.
What commission do realtors make?
When you sell a home, and hope to make a profit, you can’t help but be curious about how much your real estate agent is going to make off the sale of your home.
What commission do agents or Realtors make? While the standard commission the seller pays is 6% of the sales price, that commission is negotiable. The commission amount is negotiable between the listing agent and their client.
And after a sale, how much of the commission the listing agent receives may actually be far less.
First, the listing agent has to split their commission with the buyer’s agent. Often, this is an even split, but the seller may choose to negotiate an uneven split. For example, the seller may decide they want the listing agent to receive 4% and the buyer’s agent to receive just 2% of the commission.
After they split the commission between the two agents, each agent will then split their commission with their broker. There is no exact standard here: Every agent will have a different arrangement for how they split their commission with their broker. Typically, newer agents take a smaller commission split than ones who are more experienced, or who sell a lot of pricey properties. In fact, technically the seller pays the broker, and they’re the ones who pay the agent.
Let’s look at an example of how this might break down: Let’s say a listing agent sells a home for $500,000. If a 6% commission rate was in place, that would lead to the seller paying $15,000 in commission fees. Once the listing agent splits this commission with the buyer’s agent (assuming a 50/50 split), each would take $7,500 to their brokers. If each agent has agreed to an equal split with their broker, both of those parties would walk away with $3,750.
How is commission determined and who pays it?
The home seller pays the real estate agent’s commission, but the fee is subtracted from the proceeds of the sale (which, of course, the buyer supplies the money for). Most sellers can account for that fee in the price of their home.
As mentioned earlier, how much of a commission percentage real estate agents make depends on the terms spelled out in their contract with the seller. While most agents are paid around 6% commission, this amount does vary. This contract between the seller and the listing agent is what ensures the agent gets paid once the property sells.
Sellers may feel frustrated when they have to hand over a chunk of their profit after they sell their home, but there’s a lot of work and expense that goes into selling or buying a home. Both listing agents and their brokers spend time and money to advertise a home and to prepare it for sale. If they don’t sell the home, the seller typically doesn’t reimburse these costs. The agent and their brokerage both take on risk and upfront expenses. They also make it easier and less stressful to sell or buy a home, so it’s important not to underestimate the value they bring.
What’s a typical annual salary for an agent?
How much an agent earns depends on how much they sell, how they choose to split commission with their brokerage, and what types of properties they sell. Real estate agents that live in an area with high property values (such as a big city like New York) generally earn a much larger salary without necessarily doing any more work than agents who work in sleepy suburbs.
Because most real estate agents are paid on a commission-only basis, how much they sell determines how much they will bring home. That being said, some agents do receive a base salary plus bonuses, but this is more commonly found amongst agents employed by large companies.
There is no “typical” annual salary that real estate agents can expect to earn, but we can look at some average numbers. Again, where you live tends to play a big role in how much you bring home per sale, but on average listing agents receive $6,483 to $9,433 from a typical home sale. Buyer’s agents on the other hand tend to earn average commission ranges from $6,502 to $9,157 for the sale of each home.
How do these numbers add up throughout the year? In 2019, the median annual pay for real estate agents was $48,930 according to the U.S Bureau of Labor Statistics. Brokers earned an average of $59,720.
It’s important to remember that these numbers are just averages and that many agents earn a lot less or a lot more than these average amounts. For example, in 2019 the highest 10% of agents earned more than $111,800 and the top 10% of brokers earned more than $178,720.
What happens if a sale doesn’t close?
Despite their best efforts, every agent will likely come across a property they just can’t seem to sell. Real estate agents don’t earn commission until the home they’re listing sells or they find a buyer for a home. Listing agents spend a lot of time and money when they attempt to sell a home and it is very frustrating when months of effort go unrewarded.
In some cases, the broker is still eligible to make money even if the home one of their agents is attempting to sell doesn’t close. If a buyer is ready and able to purchase the home, the broker may be entitled to a commission even if the seller:
- Decides they don’t want to sell
- Has a spouse who signed the listing agreement but won’t sign the deed
- Has a title with uncorrected defects
- Commits fraud in relation to the sale of the home
- Can’t deliver possession to the buyer within a reasonable amount of time
- Insists the buyer meet terms that aren’t listed in the listing agreement
- Comes to a mutual agreement with the buyer to cancel the transaction
For those curious about how much the real estate agent they plan to work with is likely to make, you can get a pretty good idea by calculating what 6% of your ideal sale or purchase price will be and then dividing it by four. Until you get a contract in place, you won’t know the exact commission amount and even then, you’re unlikely to know what the split between agent and broker will look like.