Updated: November 19, 2015 | Published September 15, 2015
Before beginning any new career, there’s one major question that most people have: “How much money can I make?” In real estate, that’s not a simple question to answer. The average real estate agent’s salary fluctuates from year to year because your pay is based on performance-based commission. That means that the money you earn depends on the number of transactions you close, and the value of those transactions. In the video below, Toby details the factors that affect the salary of a real estate agent and provides a formula for determining your earning potential in a real estate career.
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The U.S. Department of Labor cites the average annual wages for a real estate licensee at about $55,000. This is about $26.00 an hour and you have to keep in mind that's an average. Many licensees, for one reason or another, make a lot less. There are also many licensees that make a lot more.
Here's how a typical commission is split from a real estate transaction. You sell a listing for $100,000. There is a 6% commission on the property. Pretty easy math here; 6% of $100,000 is $6,000. But this commission isn't all yours. Generally, as a new agent you would be working under the guidance of a broker manager that you would have to split this commission with. Your broker may also have to split the commission with another broker who represents the buyer side of the transaction.
So a realistic commission split looks something like this. A $100,000 sale price at a 6% commission equals $6,000 total commission. That $6,000 is then split between the listing broker and the buyer's broker on generally a 55%-45% ratio. So $6,000 at 45% equals about $2,700 to the buyer's broker. The remaining $3,300 is then divided between the listing broker and you, according to your agreed-upon commission split with that broker.
There are many ways commissions can be split between agents and brokers, but for the sake of a clean example, let's say that the broker keeps 50% and you keep 50%. This would mean that you get $1,650 for listing and selling a $100,000 home. One thing to note, this simple example does not take into account any marketing expenses, signage costs, commission reductions, etc. If expenses are not managed properly, you could lose money on a deal like this. But this math also holds true on more expensive properties. In the case of a $400,000 property, you would receive a final split, after everything, of about $6,600.
As you can see, your earning potential as a real agent is entirely dependent on how many transactions you can close and the value of those transactions.
