If you’re thinking about jumping into a new career as a real estate agent, you want to make sure you understand all aspects of the real estate business—including pay. Unlike other career choices, there is usually no guarantee of pay in real estate, rather it’s determined by the number of homes you list for sale (and sell) and how successful you are at helping interested buyers find and purchase homes.
Not all real estate agents make the same amount of money; rather, their income is influenced by many different factors. Below we will take a look at how much money a real estate agent makes, and ways that real estate agents can influence that amount, so you can decide if being a real estate agent is a good career.
Do Real Estate Agents Make a Lot of Money?
A real estate agent’s income is dependent on many different things, including how long they’ve been in business, the market they’re in, the brokerage they’re partnered with, and the types of properties they’re selling.
The first factor that determines how much money a real estate agent makes is their experience level. Most first-year agents barely squeak by because they’re working to build up a client base.
While they can implement marketing techniques to advertise their services, the best way a real estate agent can build up their clientele is through referrals from other satisfied clients. Obviously, when an agent is starting out, they don’t have these referrals, so building their business is a bit more challenging. Real estate agents only get paid on the houses they sell or help their client’s purchase, so if they don’t have clients, they won’t be making a lot of money.
The second factor that impacts how much money an agent will make is their success rate. While real estate agents that sell hundreds of high-value properties a year will make well over the median income, those agents who only sell one house every couple of months will definitely be on the lower end of the pay range.
It’s important to note that most real estate agents only sell between four to six homes a year, so selling hundreds of high-value properties is not as easy as it sounds, and people looking to start in real estate should not expect to sell more than 10 homes their first year.
The third factor that contributes to a real estate agent’s income depends on the brokerage they’ve partnered with. Of course, real estate agents make the majority of their money on commissions from the buying and selling of homes, but they don’t get to keep the entire amount.
If you’re asking yourself, “What percentage do real estate agents make?”, the answer is that it depends on the situation. Real estate agents need to split their commissions with their sponsoring broker, and the commission split is usually determined by the real estate agent’s experience level.
For example, a first-year agent might receive only 50% of their commission, while the brokerage gets 50%. However, as a realtor gets more experience (and is likely bringing in more sales) the commission split starts to favor the agent more than the broker.
The fourth factor that determines an agent’s income is their location. Different markets have different average property sale prices, so a real estate’s pay is largely based on their location. An agent that’s selling million-dollar homes in Los Angeles will obviously make more money than an agent selling $200,000 homes in Ohio. In fact, an agent’s income is so largely determined by their market, that mean incomes drastically vary from state to state.
10 States Where Real Estate Agents Earn the Most Money
If you live in one of these ten states, you’re in luck! You will be making more money than those in the other 40 states. Here are the top ten states where real estate agents earn the most money, and their 2017 mean annual wages.
- New York – $102,310
- Texas – $72,480
- Hawaii – $72,470
- Alaska – $71,030
- Rhode Island – $70,450
- California – $68,850
- Pennsylvania – $66,550
- Wyoming – $64,500
- Virginia – $64,290
- Colorado – $63,320
10 States Where Real Estate Agents Earn the Least Money
Unfortunately, not all states have a booming real estate industry. If you’re in one of these ten states, you will be making some of the lowest incomes compared to agents across the country.
- Ohio – $41,650
- Arkansas – $41,600
- Montana – $42,010
- Indiana – $43,230
- West Virginia – $45,220
- Connecticut – $45,230
- Tennessee – $45,960
- Georgia – $46,220
- Nebraska – $46,340
- Kansas – $46,640
How Real Estate Commissions Are Paid
Like we mentioned in our “Sponsoring Brokerage” section, real estate agent commissions are based largely on their sponsoring brokerage. When a real estate agent sells a home, they’re typically paid through a listing agreement that is signed by the seller and the listing agent. The listing agent will sign on behalf of the brokerage.
However, not only do the listing agent and brokerage split the commission, but the commission must also be split with the brokerage that represents the buyer. Here’s an example from The Balance of how much a listing agent would make if the commission was 7%, with a 50% split with the brokerage who produces the buyer.
The sales price of the property is $200,000, meaning the total commission at 7% would be $14,000. Because the brokerage takes 50%, the commission left for the real estate agent is $7,000. This $7,000 is then split between the listing agent and the agent representing the buyer (at about a 60% split for first-year agents).
This leaves only $4,600 for the listing agent. Of course after that, federal and state taxes will be removed, which can add up to around 30% or more and take out a significant chunk from the $4,600, making the initial $14,000 in commission not quite as accurate anymore.
Now that you understand more about the payment structure of real estate agents, are you ready to start your career as one? If so, take advantage of our Real Estate Pre-License Course to educate yourself on real estate best practices and prepare for your real estate license exam.