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A growing number of people are looking into becoming Realtors with the hopes of cashing in on the rising home prices of today’s real estate market.
But how much do Realtors make? Keep reading to find out how much you can expect to earn as a real estate agent.
What Is a Realtor?
To understand how much a Realtor makes, you first have to know the difference between a Realtor and a real estate agent.
In short, a Realtor is a trademarked term that refers to someone who is a member of the National Association of Realtors (NAR).
Not all real estate agents are Realtors. Further, the term Realtor applies to a wide variety of jobs like property managers, appraisers, and counselors. So you don’t have to actually broker deals to be a member of the NAR.
About half of the real estate agents in the U.S. are certified Realtors and abide by a Code of Ethics. This forces them to uphold a set of standards and 17 professional articles that govern how they’re allowed to act.
What is the average salary of a Realtor?
According to Indeed, Realtors now make an average income of $84,074. However, pay typically varies year to year because it’s based heavily on performance and commissions. So if you have a great year in real estate and sell some million-dollar properties, you can significantly increase your earnings.
Furthermore, according to the U.S. Bureau of Labor Statistics, the average real estate agent salary is around $49,000.
As you can see, the earning potential varies widely. It all comes down to how hard you work, your personality, your ability to close deals, and luck. Sometimes, deals will fall in your lap from referrals, while other times, you have to really push to get them done.
Home buyers and sellers can be difficult to work with. During your first year after getting a real estate license, you might not earn much, especially if you treat real estate as a part-time job.
Real estate sales is not easy, and new agents often struggle to make a livable annual salary.
Total earnings also depend on the arrangement that a real estate agent has with their broker. Commissions are split between the seller’s agent and broker and the buyer’s agent and broker.
Additional benefits may come in several different areas. For example, Realtors may receive cell phone reimbursement, health insurance, a stock purchase plan, gym memberships, professional development assistance, and paid time off.
Realtors are also often allowed to work from home, saving money on gas and travel. This is a common benefit in the post-COVID economy.
Realtors vs. real estate brokers
It’s important to understand that as a Realtor you’re required to work either as a broker or with one.
Generally speaking, you can operate as an independent Realtor, which could mean higher commissions and more freedoms. However, this requires getting certified as an official broker and obtaining a license.
The more common approach is to work on behalf of a certified broker for either a small firm or a large organization.
Both options have pros and cons. Working with a smaller broker can be more flexible, but you won’t have access to the same resources that large firms can provide.
Smaller firms also tend to be less organized and efficient in their processes. That can create problems during the fast-paced real estate process, when communication needs to happen quickly.
Working with a firm that doesn’t have its act together can slow you down and lead to lower commissions.
On the other hand, working with large national firms can be more restrictive, as you may need to follow specific policies even when they work against your interest.
Another important thing to consider is, if you work for a brokerage firm, you have to be exclusive to that firm. You can’t get paid directly or go off and close deals on your own as an independent contractor.
Real Estate Agent Commissions
Realtors are responsible for forming an agreement with their broker regarding real estate commission.
Most of the time, the commission is an even 50/50 split. However, highly talented and sought-after salespeople may be inclined to ask for more, depending on their ability and experience. At the same time, newer Realtors may have a hard time asking for an even split or more.
In many ways, success depends on how you deal with the broker. Don’t be afraid to command top dollar if you’re a successful Realtor or real estate agent.
Remember that real estate is not for the timid. Ask for what you deserve, and don’t be afraid to shop around and compare different brokers if you don’t like the total commission package that you’re offered.
It’s also important to be careful about signing any exclusive deals with a real estate brokerage firm unless you’re completely comfortable with the arrangement. Consider having an attorney look over the agreement and try to write in an exit plan so that you can terminate the agreement if you have to.
How commissions are distributed
As for the payment itself, this will be outlined in the listing agreement. This is essentially a contract between the listing broker and seller that outlines the exact terms of the real estate transaction.
The broker has the right to negotiate the commission. In most cases, commissions run in the 4% to 6% range, although this is not always the case. The commission is usually baked into the asking price and either paid at the time of closing or paid over time through monthly payments.
How Realtors get paid
The average real estate agent or Realtor won’t get anywhere near full price on the commission of a property, even when agents work hard and have years of experience.
Instead, you get a commission based on a small percentage of what the listing broker gets. For example, suppose a house sells for a sales price of $150,000 and the agent gets a commission rate of 5%. That would amount to $7,500.
If the buyer’s agent and listing broker split the commission, that would amount to just $3,750. From there, the broker and listing agent would split the money based on their arrangement. So even under an optimal 50/50 commission split, the Realtor walks away with only about $1,875 before taxes.
As you can see, you have to work very hard in real estate to make a substantial amount of money. That’s why real estate agents typically go after the best properties in the most profitable areas. If you get hung up selling condos and houses in low-value neighborhoods, you’re not going to make a lot of money — especially if you work with a broker that takes 50% or more of each deal you bring in.
That said, if you’re serious about making money in real estate, consider going through the certification process and becoming your own broker to cut out the middleman. Of course, this might take time, and you probably also want to learn the game by working with a broker first. But in the long run, it’s a better way to go.
How to become a certified broker
Each state has its own process for becoming a certified real estate broker.
For example, the state of Florida requires brokers to complete a 72-hour Florida Real Estate Commission (FREC)-approved pre-licensing course, submit an application fee and fingerprints to the state, take and pass the Florida Real Estate Broker Exam with a grade of 75 or higher, activate the license, and then complete a 60-hour FREC-approved post-licensing course.
Check with your individual state to see how it compares and whether the process makes sense. For example, states like Texas, California, New York, and Arkansas all have different rules.
But becoming a broker could be a good long-term decision if you have the resources and connections to pull it off.
Frequently Asked Questions
What is a listing agent?
A listing agent is a real estate agent who represents the seller of a home. This person works for the seller, as well as a broker. In some cases, the listing agent may also be a certified broker.
Is the housing market secure?
No form of investing is truly secure. However, real estate is generally considered a pretty secure form of investing, compared to stocks and non-traditional assets.
Remember that there’s a big difference between selling real estate and investing in real estate. Working as a real estate agent is not the same as putting money into properties. This is an entirely different hustle.
Is commercial real estate better than residential real estate?
It’s not a matter of saying that one type of real estate is better than another. Both markets have pros and cons that Realtors should be aware of. Spend some time researching both markets before getting involved in commercial or residential real estate.
The Bottom Line
Working as a real estate agent or Realtor can be a stressful undertaking. It involves putting in long hours, racking up a lot of miles on your car, and dealing with all types of buyers and sellers. You also need to have strong people skills, tenacity, and expert negotiation capabilities.
Yet for those who can swing it, a real estate career can be highly rewarding. If you’re good at it, you can earn an above-average salary as a real estate agent. You can also potentially find real estate investment deals before others do and reinvest your profits in those — further adding to your net worth.
Here’s to finding a real estate career that fits your financial and lifestyle goals.