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Posted by: Kaplan Real Estate Education Updated: October 1, 2019
Are you interested in starting a new career as a real estate agent? Before beginning any new career, there’s one major question that most people have: “How much money can I make?” In order to understand a real estate agent’s salary, it’s important to know what a real estate agent does to earn their income. Real estate agents are hired by clients to buy or sell properties. The average real estate agent’s salary varies from year to year because pay is based on performance-based commission. This means that the amount of money you make per year is based on how many properties you sell and how much commission you receive on each sale.
The U.S. Department of Labor cites the average real estate agent salary around $61,720, as of May 2018. Some real estate agents make a lot less, and some make a lot more. Typically, as a new real estate agent, you will be working under the guidance of a broker manager with whom you will have to split your commission. This means that you will be listing and selling the property, but the commission you receive will be split between you and your managing broker, based on an agreed upon amount. Your managing broker may also have to split the commission with another broker who represents the buyer’s side of the transaction. Below is an example of how this process might work.
How to Calculate Commision-Based Salary of a Real Estate Agent
You make a $300,000 sale that has a 6% commission rate, which would be $18,000.
This $18,000 is split between the buyer’s broker and seller’s broker, according to an agreed upon amount (generally a 55% to 45% ratio).
This means $8,100 goes to the buyer’s broker and $9,900 goes to the seller’s broker (your managing broker).
Next, the $9,900 is split between you and your managing broker’s agreed upon amount, let’s say 50% and 50%.
This leaves you with a commission of $4,950 for listing and selling a $300,000 home.
Keep in mind that this doesn’t take into account additional expenses you may incur, such as marketing expenses, signage costs, commission reductions, and so on. If expenses are not managed properly, you could potentially lose money on a sale. Additionally, this math can hold true on sales of any price. For example, if you used the same math on a $400,000 home, you would receive a split commission of $6,600.
Your earning potential as a real estate agent is dependent on how many sales you can close and how much commission you make off each sale. Your income may also vary depending on how many hours you put in, your level of licensing and training, and which part of the country you work.
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