How Much Commission Do Real Estate Agents Make?
Commission is the financial element that keeps a strong majority of real estate agents, brokers and similar professionals in business. It’s also the reward for helping a property owner buy or sell a given piece of real estate.
Whether working as the buyer’s agent, seller’s agent or real estate broker, understanding the processes that determine commission payouts, commission splits and similar concerns helps you make better financial decisions as a professional. Let’s look at some common questions around real estate commissions and how much those in this field may earn.
How do real estate agents get paid? And how much do you really make?
Traditionally, and in many cases currently, real estate agents earn a commission when their client, whether a buyer or seller, successfully completes a transaction for a piece of property. They may also charge a flat fee, but this isn’t as common. Brokers, meanwhile, are often paid part of that commission in return for the support and services they provide to their agents. Brokers may also earn money through a regular fee paid by an agent to the brokerage instead of a commission split.
This compensation format means real estate professionals have a wide degree of variation in their earnings in the short and long terms. Factors such as the cost of real estate and available properties in the area where a real estate agent operates will also influence income potential. ZipRecruiter shared a convenient list of average real estate agent salary by state, breaking the earnings down into hypothetical hourly wage and total yearly compensation. New York, Massachusetts and Washington state top the list, with yearly earnings above or near $90,000. Missouri, Florida and North Carolina have the lowest average annual earnings, with compensation roughly between $66,000 and $71,000 for real estate agents in these states.
The split of commission between real estate agent and broker needs to be kept in mind when determining how much an agent really makes. The Balance highlighted several different formats for the split of the commission fee between broker and agent. They include:
- The 50/50 split, with each party receiving half of the gross commission. This is a traditional format.
- No split, where the agent keeps the entire gross commission and instead pays a set fee based on a specific time period or for each sale made.
- Salaried, where agents receive a set salary instead of payment through commissions earned. Agents may also be paid a salary and receive a smaller part of commission for each sale. These arrangements aren’t common but are in place at some brokerages.
It’s important to note that an average salary – or, more accurately, average commission earned yearly for real estate professionals – only tells part of the story. State and local factors like cost of living differences, state of the real estate market and the specific area in which a real estate agent operates can all have an impact on the spending power of the money earned. A real estate professional in a state or city with an especially low cost of living may have more purchasing power, despite lower total income, as compared to an agent who makes more but resides in an area with a notably high cost of living.
How much is the average commission for a real estate agent?
Real estate agents can help their clients buy and sell everything from unimproved lots – which can involve higher commissions than homes, due to the additional work needed to sell this type of real estate, as Realtor.com pointed out – to units in multi-story apartment buildings. Add in the variations in price of similar pieces of real estate due to market activity and cost of living, among other factors, and arriving at a concrete average commission dollar figure would require in-depth analysis. It may also be so broad as to not be particularly useful.
However, there is an average that is valuable for real estate agents to keep in mind: percent of the final sale price of real estate. In general, commission comes out to 5-6% of a home’s total price. There is plenty of room for variation, but this is a dependable general guideline for the industry. Realtor.com said this figure is generally the same for both the listing agents (also known as the sellers’ agents) and buyers’ agents. It offers an easy guide to determining what percentage real estate agents make per sale – simply multiply the expected final price of the home by 5.5% to get a rough estimate of earnings.
Agents may be asked by their clients to lower the commission tied to a real estate transaction. Agents may choose to provide reduced services in exchange, or decline the request. Having this power helps real estate agents make the best choice for their operational needs.
Making effective financial choices as a real estate agent
Remember that commission isn’t pure profit. Real estate agents generally split their payments with their brokers on a 50/50 basis, and the remaining funds have to go toward expenses ranging from staging costs and advertising to taxes.
Managing these many financial obligations can be difficult when payment only arrives following the completion of a sale. This can take a month or more from the point when a buyer submits a mortgage application, NerdWallet said, and that assumes the application will be accepted. With many operational expenses not aligning with the widely varied payment schedule in place for many real estate agents, having an option to smooth over the peaks and valleys in payment can provide a much-needed source of temporary funding and a sense of consistency.
Just Commission Advance offers dependable funding based on expected commission before a sale is closed, helping you better maintain your business and continue to operate as effectively as possible. Apply for your advance today!