Not all real estate agents earn the same amount of money. Agents enter the profession from all walks of life and with varying levels of education and motivation, and this can influence income.
Some do it for the money, while others are attracted to the glamour, excitement, and challenges of selling a property. Others want to be part of a profession that helps others accomplish their dreams.
Key Takeaways
- Real estate agents' earnings range quite a bit, from a modest $25,000 or less to more than $1 million annually.
- Agents' salaries are usually based on commission—a percentage of the sales price that they split with their brokerage.
- Annual earnings for an agent will depend largely on how many homes they sell and the market in which they're selling.
How Much Does the Average Real Estate Agent Earn?
Most first-year real estate agents earn very little, primarily because they're struggling to learn the business while they build client bases. They can rely on referrals from satisfied clients to continue building their business as years go by, and they learn other ways to attract clients.
In 2020, the median pay for real estate agents in the U.S. was roughly $49,000. The lowest 10% of earners made less than $25,000, while the highest 10% of earners made more than $112,000.
Note
Real estate brokers typically earn more than real estate agents. In 2020, the median real estate broker pay was roughly $60,000. Each specific real estate designation has a best-use case, so it helps to understand which one you need for your situation.
How Real Estate Commissions Are Paid
How much agents earn depends on the number of transactions they complete, the commission that's paid to the brokerage, and their split with sponsoring brokers. Agents who are just starting typically receive a low commission split while they learn the business.
Apart from buyer-broker agreements that allow for direct payment to a buyer's broker, most real estate agents are paid through a listing agreement signed by the seller and the listing agent. The agent signs on behalf of the brokerage.
The listing broker then shares part of that commission with the brokerage that represents the buyer. All real estate commissions are negotiable, but agents set their own rates with fees paid directly to the broker, not the agent. Agents work for brokers.
Note
The seller typically designates how much the buyer's agents are paid, but it's also based on local custom.
A listing commission can vary from a flat fee to 10% or more of the sales price.
An Example
Let's look at an example of how much a listing agent would earn if the commission paid were 7% with a 50% split with the brokerage that produces the buyer.
If the sales price were $200,000, the total commission at 7% would be $14,000, of which $7,000 would be retained by the listing brokerage. From that $7,000, the listing agent would be paid on a split; for a first-year agent, you could expect to pay around 60%.
The agent would gross $4,200 at a 60% split. They would net about $2,940 of that after deducting federal and state taxes, which could amount to 30% or more. The agent also pays overhead and expenses, which could eat up another 20% of the gross, resulting in a net income of just $2,352.
How Many Homes Do Agents Sell?
Ideally, a real estate agent would want to sell as many homes per year as they can to earn the best salary. However, they may only sell a handful per year—it all depends on their clients, their region, and the broader market.
The saying is that "20% of the agents do 80% of the business." Agents don't generally go into the business wanting to be part of the 80% who achieve only 20% of sales, but that's often the stark reality.
How Much Do Top Real Estate Agents Make?
Top producers earn a lot more than the average real estate agent. Each real estate office sets its own standards for top producers, but it's safe to say that a top producer would have to sell at least one home per month to qualify. Top producers earn around $112,610 a year to start, according to the BLS. Mega-stars could earn $500,000 per year and up.
Note
Rock star agents can sell $500 million worth of property per year in places such as Los Angeles, which means they personally could earn millions annually.
You can look at the dollar volume of the top producers, most of whom are listing agents, and you can pretty much figure out how much they earn per year. If a top producer tells you they sell $50 million per year, it's an educated guess that they earn at least a million dollars in commissions, and probably well over that.
Some agents have formed teams and hire other agents to work for them. Often, but not always, the team leader earns credit for each sale in that type of arrangement, even if a team member originates the transaction. Most team leaders are strong listing agents.
Discount real estate brokers have to sell more property than traditional full-service brokerages to earn the same amount of money. What discount brokers sacrifice in service is made up by the number of transactions—or at least that's the goal.
Frequently Asked Questions (FAQs)
How do you become a real estate agent?
The process for becoming a real estate varies by state. In general, you need to take a course to prepare for your licensing exam. Next, you'll take your licensing exam. If you pass, you'll need to complete any other required steps to get your license, which may include a background check.
What is a fair commission for a real estate agent?
Commissions are typically around 5% to 6% of the home's sales price. It does vary a bit by area and by the agent. If you're buying a home, you typically won't pay your real estate agent's commissions. Home sellers typically cover that. None of this is set in stone, however, and could be negotiated.
