Average incomes for real estate agents can vary based on the source you look at and if an agent is part-time or full-time. People see that real estate agents make less than $40,000 a year on average and assume it is impossible to make more than $100,000 a year. The average income figures for real estate agents are skewed, because many agents do not work full-time and many agents do not put their hearts into the work. I have made over $100,000 a year the last six years and I know many real estate agents who make well over $100,000 a year. It is not rocket science and you do not have to work 80 hours a week to make good money as an agent. This article is going to discuss how many houses you have to sell in different markets to make $100,000 a year based on common commission splits and the costs an agent will have to incur.
What is the average income of a real estate agent?
I discuss how much money real estate agents make in this article. The truth is the averages are pretty low because many agents work part-time and many agents don’t try very hard. To be a successful real estate agent you have to do more than get your real estate license and show up to the office once a week. The average income for a real estate agent is $39,000 a year, but the average income for a full-time agent is $54,000 a year. If you become a Realtor, which requires more classes, fees and a code of ethics incomes increase even more. If you look at just the $39,000 a year figure then it looks like real estate agents don’t make anything, but if you look at all the numbers they actually make quite a bit. In fact, Over 21 percent of Realtors make $100,000 a year or more.
How do real estate agents make money?
Real estate agents make a commission on each houses they sell. Commissions are always negotiable, but HUD pays listing agents three percent and buyers agents up to three percent so I will use three percent as an example commission. Real estate agents usually represent one side of a transaction; the buyer or the seller. Each side of that transaction may make three percent, but again that is negotiable. On bank owner listings sometimes the listing agent gets a smaller percentage than the buyers agent. Commissions could be four percent in some cases or one percent like with some REO auctions. If you sell a $100,000 house a three percent commission would equal $3,000 to one agent, but the agent does not always get to keep that entire commission. Most real estate agents only get paid when they sell a house, unless they are working on a team or a commercial real estate agent.
Why don’t real estate agents get to keep their entire commission?
When you become a real estate agent you have to work under a broker in the beginning. You don’t have to work with that broker, but you have to hang our license with the broker. Different brokers provide different levels of support ranging from nothing to intense training programs and mentors. The more training, staff support and office space you get the smaller portion of the commission you get to keep. Commission splits can range from 50/50 to 100 percent with a small transaction fee paid to the broker. Remember, a lower commission split is not advantageous if you never sell any houses. I think new agents should go with a broker who offers the best training, not the highest split.
If you sell a house for $100,000, make a three percent commission and have to give 40 percent to your broker, you will keep $1,800. You will have more costs we have to figure as well, but a $100,000 sale is also pretty low in many areas of the country.
What are the other costs involved with being a real estate agent?
Besides paying your broker a split of your commissions, other costs come with being a real estate agent. Many of these costs will vary greatly depending on your marketing and agreement with your broker. Some brokers will charge for an actual office on top of commission splits, you may have to pay for advertising, MLS dues, Realtor fees, and there are other less direct costs. Most people will drive much more as an agent and you better make sure you have a reliable car. You don’t have to have a fancy car to be an agent, but it must be presentable! Here is a look at what the costs may be for a brand new agent. I don’t think you have to spend a ton on advertising to make good money either. There are many ways to get leads for free.
- MLS dues: $500 a year
- Realtor and board dues: $300 a year
- O and E insurance: $300
- Business cards, name tags, etc; $500 a year
- Advertising $1,000 to $50,000 a year
- For sale signs, marketing materials: $200 to $5,000 a year
- Total: $2,800 to $50,000 plus
There is a wide range of costs because you can spend as much as you want on advertising. I think there are plenty of ways to advertise for free or very minimal costs as a real estate agent. Some of these costs your broker may cover and some may not be covered. There will be in direct costs as well depending on what you need. Do you have to buy a new car, new computer, new phone, new clothes or new desk? These costs can be pretty minimal or add up very quickly if you go crazy with spending.
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How many houses to you have to sell to make $100,000 a year?
On to the fun part of being a real estate agent; selling houses and making money. If you are selling $100,000 houses and paying 40 percent of your commission to your broker you would have to sell over 50 houses a year to gross $100,000 a year. That is a lot of houses to sell, especially for a new agent. If you can increase your average price, you can make much more money. Here is breakdown of different sales numbers for different price points.
Average sale price Commission kept Number of houses needed to make $100,000
$100,000 $1,800 55.6
$200,000 $3,600 27.7
$300,000 $5400 18.5
$500,000 $9,000 11.1
If you can sell higher priced homes it makes a huge difference in the amount of money you will make. This is why training is so important and learning from others will make you more money. Not only will you make more money with training by selling more houses you should also learn how to sell higher dollar houses. You will also learn how to list houses, which can mean two commission checks on one sale!
If you break down how many houses you have to sell, you would only have to sell 2 houses a month to make close to $100,000 a year gross with an average price of $200,000.
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Why it is important to track expenses closely as an agent
If you gross $100,000 a year in commissions, but spend $50,000 on expenses you aren’t really making $100,000 a year. This is why you have to track your spending carefully as an agent and be careful how much you advertise. There are hundreds of companies trying to take real estate agents money for leads. Few of them deliver any value and most of them are not worth the cost. As a new agent it is important to focus on building relationships, not paying for leads. If you can keep your costs below $5,000 a year, one or two sales will make come close to covering your expenses instead of ten to twenty.
How much work do you have to do to make $100,000 a year?
Being a real estate agent takes time and work. You have to get licensed, find a broker, find buyers and sellers and then show houses, list houses and sell houses. Even though it may not take a lot of hours to list a house and sell it, it takes many hours behind the scenes to find the sellers and build your business. Many people want to start real estate on a part-time basis, but it is very difficult. People want to talk to their agents and see houses at all times. If you have to work part-time you need to have a team or partner who can cover for you if you don’t have a flexible schedule.
Real estate agents don’t have to work 60 or 80 hours a week to make a lot of money, but sometimes they do have to work odd hours. Many buyers will have to work and want to see houses on the weekends, or after 5 or 6 pm. Even though you may work late some nights or on the weekends, you can also take time off during the work week for your kids activities like dance class or to pick them up from school.
The more houses you sell the more leverage you have with your broker and the more money you can make
In the beginning it is best to work with a broker who will provide training to help you succeed. Once you find success and start selling a lot of houses, you become an asset to your broker. You will be in demand by many offices, because they more houses they sell, the more agents they can recruit. That means you can negotiate a lower commission split and make more money selling the same amount of homes. Eventually you can move on to focusing on listings and hiring other agents to join your team who work with buyers. I have eight people on my team and I only work with REO sellers and friends and family. My team handles the rest of the business.
Making $100,000 a year is not out of reach for real estate agents. In fact, many agents accomplish this and earn much more. The money will not fall into your lap and the more training you have the better off you will be. One of the agents on my team made $100,000 in his first year in real estate. If you want to see what it takes to make one million a year as a real estate agent, check out this article.
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