Interested in becoming a real estate agent? A huge factor in the direction of many people’s career paths is, understandably, how much they can make from working in the position they are interested in. So, here’s a little more information on real estate agents, what they do, how they are compensated and how much you could expect to earn in this kind of position.
What Is a Real Estate Agent?
Let’s start out by establishing what a real estate agent is and what they actually do for a living. This will give us more insight into their role and its value. Put simply, a real estate agent is a licensed professional who arranges real estate transactions. They will generally pair buyers and sellers, acting as a middle person and a representative in all negotiations. As you can imagine, selling or buying a house is rarely as simple as putting the house on the market, someone viewing it and then offering the asking price. Instead, a real estate agent will generally promote the property, find a buyer who seems genuinely interested and then negotiate the price to suit both seller and buyer. When it comes to pay, the value of the real estate agent’s work can be based on the value of the property. Selling a more expensive property is more difficult than selling a cheap one. This means that rather than receiving a salary, real estate agents are generally compensated through commission. This is essentially a percentage of the property’s purchase price. As such, a real estate agent’s income is largely determined by their skillset and their success rate. Rather than having a secure income, they will be rewarding according the number and value of properties they sell throughout a year. The ability to close a deal becomes essential to their living. However, it is important to remember that real estate agents are rarely entirely freelance. Instead, in the majority of states, they have to work for or be affiliated with a real estate broker. This is an individual or firm that specialises in the sale of property.
Areas of Specialism
You will find that real estate agents generally specialize in one of two types of real estate – commercial real estate (for businesses) or residential real estate (for individuals). There is good money to be made in either of these areas of specialism and, again, the income provided will largely depend on the skill of the real estate agent.
Roles and Responsibilities
Before we get onto average incomes and further details regarding pay, it’s good to be familiar with the roles and responsibilities of a real estate agent if this is a field that you’re interested in getting involved in. The roles and responsibilities of an agent will largely depend on whether they are working for someone selling a property or someone buying a property. If they are working for someone who is selling a property, they will generally be known as a listing agent, and their key responsibilities will tend to include advising their clients on how to price the property, helping the client to prepare the property for a sale (making it as appealing as possible). This can include advice on renovations, property improvements, redecoration and other factors that can encourage buyers to make an offer. They will then market the property, providing quality photographs and creating listings through websites, listing services and other forms of advertisement. If a real estate agent is working for someone who is interested in buying a property, they will conduct searches for the property that will best suit their needs and requirements. They will also help with factors such as realistic budgets, sourcing properties that meet unique requirements or wishlists and looking at past sales data as well as current sales data to recommend a fair bid on a property that the buyer is interested in.
Whether working for the seller or the buyer, real estate agents also play an important role once negotiations are in place, acting as communicators between the two parties, providing offers and counteroffers and going back and forth until a final price is agreed. They can also make recommendations on inspections, moving into the property and more for the buyer.
Real Estate Agents and Brokers
As we briefly mentioned above, real estate agents will generally have to work for a broker. Understanding this relationship will provide further insight into real estate agents’ pay. Put simply, agents aren’t allowed to work independently and cannot receive commission directly from their clients. This prevents corruption and undercutting. Commissions for real estate sales will be paid directly to the broker, who will then fairly split the commission between any individuals who were involved in the sale.
How Much Do Real Estate Agents Earn?
Of course, while different real estate agents earn different amounts based on their skill and ability, there are averages that can give an indicator of how much people can expect to earn in this field. Surveys have shown that the median annual pay for real estate agents was $48,930 in 2019. The top earning 10% of agents earned more than $111,800. As you can see, there’s scope for a lot of money to be made in this industry!
How Real Estate Commissions Work
If you get further involved in this journey and are seriously considering becoming a real estate agent yourself, you may want to understand more about how real estate commissions actually work. From a client’s end, the broker’s compensation is specified in the listing agreement. This ensures that both the seller and the broker know how much the broker will receive when the property is sold. Further conditions of the listing will also feature here. Often the broker’s rate is negotiable, and the broker will go back and forth with their client to agree a rate before the property is put on the market. More often than not, the commission will be between 4% and 6% of the final sale value. The seller will pay this commission once a deal has been closed. As a real estate agent, you will then have a contract with your broker that will outline how much of that commission will be yours.
How Commissions Are Shared
Of course, a number of people will play a role in the sale of the property and, consequently, multiple people will want a cut of the commission made. Generally, the commission will be split between the listing agent, the listing broker, the buyer’s agency and the buyer’s broker.
If you’d like to see an example of how this may look in real life, look no further.
Say you are a real estate agent. You manage to close a deal on a property that has a final sale value of $500,000 house at a commission rate of 10%. The total commission for the sale of the property will be $50,000. If the property does sell for the asking price, the listen broker and buyer broker will split this, receiving $25,000 each. If you have an agreement for a 50/50 split with your broker, you will receive a final payout of $12,500 for your part in selling the property.
Of course, this isn’t always the case. The commission rate may not be as high or it may be higher. There may be more or fewer people involved in the sales process, resulting in more or fewer people to split the commission between. It is important that you are fully aware of all of the terms of the contract and agreement on every sale you are involved in. This will ensure that you know exactly how much you will be entitled to for each property you’re working on.
Commissions When the Sale Doesn’t Close
Of course, gaining your commission, and consequently your income, is generally entirely dependent on a sale closing and the transaction settling. This means that sales falling through or properties simply not selling can significantly impact your income. There are, however, cases to be aware of when a seller may be liable to pay commission, even if the sale doesn’t go as planned. If your broker has an offer from a buyer who is ready and able to make the purchase, they might find that they are entitled to commission, even if the seller:
- Changes their mind and no longer wants to sell the property
- Has a spouse who refuses to sign the deed
- Has a title with uncorrected defects
- Commits fraud related to the transaction
- Can’t deliver possession to the buyer within a reasonable time
- Insists on terms not listed in the listing agreement
- Mutually agrees to cancel the transaction with the buyer
As you can see, there’s a lot to bear in mind when it comes to considering a career as a real estate agent. While this is a role in which a lot of money can be made, it is also largely commission based, which means your income is entirely dependent on your performance.