How Much Money Do Real Estate Agents Make?
Let’s talk about money, baby!
Working as a real estate agent can be extremely lucrative. The earning potential is limitless. At the same time, it can be really tough to work solely on commissions. As a real estate agent, you only get paid if you close a transaction. Instead of being an employee, you are an independent contractor. At the end of the year, you will receive a 1099 from the IRS and it is your responsibility to pay the appropriate taxes based on what you earned that year.
So how much money do I actually make if I sell a house? Let’s say Amy hires me to sell her house. I would charge Amy a 6% commission fee to sell her house. If her house sold for $500,000, that means Amy would pay me a total of $30,000 to sell her house.
Now, do I get to keep the entire $30,000? The answer is most likely a big fat no. Since I am the listing agent, meaning I am representing Amy, the seller, I am only representing one side of the transaction. Whoever is buying the house needs to be represented by another agent, the buyer’s agent. Let’s say Gissella found the buyer to buy Amy’s house, then I would have to split my 6% commission in half with Gissella, the buyer’s agent. That means I would get $15,000 and Gissella would get $15,000.
Now, do Gissella and I get to keep the entire $15,000 we both just made? Again, big fat no. We then would have to split our commission with our broker (every commission split is different depending on which broker you work for). So, if we were both on a 80/20 split with our brokers, we would take home $12,000 each and our brokers would keep $3,000 each.
So now can I keep $12,000 all to myself? Well, let’s not forget about Uncle Sam. Agents need to set money aside to pay taxes. Let’s also not forget about all the expenses I incurred as the listing agent in order to sell the house such as marketing and advertising costs, photographers, lockboxes, yard signs, open house food, staging, etc.
Is there a way to keep the full 6% commission? Well, yes. Let’s say I just so happened to find the buyer myself. That means I double ended the deal and represented both the buyer and the seller as a disclosed dual agent. In that case, I would be entitled to the entire 6% commission. That’s the goal, but more times than not, the buyer is usually brought in by another agent.
Does that mean the buyers didn’t pay their agent a dime? Damn right. As a buyer, working with a real estate agent is 100% free as the seller is the one who pays the commission.
So how much can real estate agents make in a year? That all depends on how many houses they sell and how much they sold for. The commission is always based on the sale price of the house. So if a house was listed at $500,000, but it sold for $475,000, then the commission would be based on $475,000.
Let’s do some math.
Let’s say I sold the following:
10 houses at $475,000 each
3% commission each
80/20 agent/broker split
Total gross income = $114,000
Now what if I sold 25 or 50 houses? What if they each sold for $800,000 or more? That would be a lot more money. As I said, working as a real estate agent can be extremely lucrative. The earning potential is limitless, but you have to be prepared to work your ass off.
Have any questions? Feel free to reach out to me.