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You’re thinking about buying a house — maybe you’re even browsing the real estate listings online and considering how much square footage you need, and how important features like a pool or a garage are to your future happiness.
Things are getting serious as you start fantasizing about your gorgeous new home, and then the practical details start to hit …you’re going to need a buyer’s agent to help.
Eek! What is that going to cost?
How much do real estate agents make? The best agents make a lot more than the worst ones! But, happily, it’s typically not because they’re charging more per sale (although they might be).
In a typical real estate transaction, the seller pays both the buyer’s agent fees and the listing agent fees at the closing table — but just because you’re not paying the fees directly doesn’t mean you can’t be curious! Let’s dig into how agents get paid and what the different pay structures can look like for agents.
How agents get paid
This is a complicated question because, of course, it depends on the agent and the brokerage! Generally speaking, in the United States, the real estate business model follows one of three paths.
- Commission: Most of the real estate agents out there are fully commission-based, which means that they don’t get paid unless they successfully help someone buy or sell a house.
- Flat fee: Some agents are paid a flat fee for each successful real estate transaction, regardless of the price of the house.
- Salary + bonuses: Others are paid a salary with bonuses for each sale by their brokerage. Bonuses generally make up a large percentage of these employee’s incomes.
Commission-based payment is the most common for real estate agents, and it’s one both agents and buyers like; buyer’s agents like being rewarded for their hard work, and buyers like knowing their agent isn’t costing them anything if they don’t deliver.
The common wisdom is that commission-based agents make between 2.5% and 3% commission on a home sale. The total fee is usually between 5% and 6%, with half going to the buyer’s agent and half to the listing agent.
However, agents can charge whatever they want as a commission, and some agents charge as much as 5% alllll by themselves.
Some brokerages or teams will have agents work for a fixed salary, or a flat fee per listing. If this is the case, it will generally be advertised, as it’s not the most common way commission is calculated. If your agent isn’t advertising as a “flat fee” agent, you can pretty safely assume they’re a commission-based agent.
Regardless of how the commission is calculated (percentage or fixed), agents have to pay fees to their brokers (a “split”), so they aren’t taking home that full 2.5%-to-3% or the total flat fee. A typical split ranges between 30% and 50% of the commission going to the broker as fees, but that split can and does vary widely depending on the market and on what kind of services or support the brokerage offers its agents.
These agents might also be covering all their marketing and licensing expenses out of their share of the commission. That can add up quickly! They are also technically independent contractors, and brokerages typically don’t offer agents benefits such as health care or retirement savings.
William Frohriep, a Macomb County, Michigan agent for over 50 years, shared that he has been “spending from $20,000 to $25,000 each year on expenses” related to operating as a commission-based real estate agent. This includes “basic board dues, MLS fees, and advertising and marketing costs.”
These agents might work for brokerages that are also known as “discount brokerages” — essentially, you pay one amount for very basic agent representation, usually starting around $1,000, no matter how much the house you’re buying costs.
However, with a flat fee agent, you may find that you need to tack on additional agent services for more money, which can result in a much higher flat fee than you saw advertised at the beginning of the process. Sometimes this higher flat fee will even end up being more than the typical 2.5%-3% that most commission-based agents charge. This becomes increasingly likely if your house is on the more affordable end for your housing market and you need a lot of additional agent services.
You can choose to go with the basic package from a flat fee agent and do okay if you are savvy about the homebuying process and able to do some of the work a buyer’s agent will normally do for you by yourself. The long-term cost of not calculating correctly can be quite high, so you should only take on those responsibilities if you’re confident in your ability.
Salaries with incentives or bonuses
Some brokerages, like Redfin, will pay agents a salary plus bonuses for each sale they make. What an agent at a brokerage like Redfin will earn depends on a range of factors, including experience and location.
In Austin, the average total compensation for first year agents with Redfin is $67,000, and agents who have been with Redfin for 3 or more years average $173,000.
In Chicago, the average total compensation for first year agents with Redfin is $80,000, and agents who have been with Redfin for 3 or more years average $149,000.
In Washington, D.C., the average total compensation for first year agents with Redfin is $98,000, and agents who have been with Redfin for 3 or more years average $231,000.
In Portland, the average total compensation for first year agents with Redfin is $93,000, and agents who have been with Redfin for 3 or more years average $154,000.
In addition to paying a salary, brokerages might offer agents additional benefits and reimbursement for expenses.
For example, Redfin spends about $25,000 per year on those perks for employee agents, which are included as part of their total average compensation listed above. Redfin employee agents are also eligible for medical, dental, and vision plans for themselves and their immediate families.
Like employees at other companies, Redfin agents earn paid vacation time, parental leave, and disability insurance. They can elect to enroll in the company 401(k), healthcare and dependent care flexible savings accounts (FSAs), and even access coverage for fertility treatments.
Salaried agents often have their work expenses, such as their license fees, MLS access, marketing, listing materials, mileage, continuing education, and even cell phone bills covered as part of doing their jobs.
So how much do most agents make each year in total?
The Bureau of Labor Statistics states the median average income for real estate agents in May 2020 was $49,040. The bottom 10% took home less than $25,100, and the top 10% took home more than $112,410. The top paying states for real estate sales agents are New York, Massachusetts, Colorado, Connecticut, and California, in that order.
Agents in high cost of living areas (major metropolitan areas or expensive suburbs) generally earn more in hard dollars than those in rural low cost of living areas, as most agents are paid on a commission basis, and home prices can thus have a huge impact on an agent’s earning potential.
What an agent will earn in a year depends on a range of factors, including economic conditions, the agent’s individual motivation, and the types of property available nearby. As an agent becomes more experienced at sales, their income usually increases substantially because they are able to close more deals.
Most real estate agents work more than 40 hours per week, and they generally also work evenings and weekends in order to accommodate their client’s schedules. Many sales agents spend substantial amounts of time attending community events and networking to meet potential clients and to strengthen their professional networks. Despite the irregular hours, many agents enjoy the flexibility of setting their own schedule.
It’s quite common for income to be irregular for real estate agents, especially for beginners, and some agents will go weeks or months without closing a deal — sometimes due to no fault of their own! Agents who work on a commission basis don’t necessarily sell the same number of houses every month, and most people have the same bills every month.
Frohriep elaborates that looking at agent income stats provided by national and state associations can be deceptive because the individual agent is going to have a far-less-steady stream of income.
An agent needs to consider several factors, including “what if you decide to go on vacation for a month, then you’ve lost a few sales, a couple of customers went off with somebody else. Those might be a big hit.”
Seasonality, market changes like interest rate shifts, and other economic variables will also affect how much an agent can earn. The important thing for you as a buyer is to ensure that you know exactly what your agent is doing to earn their pay; hopefully, it includes writing a winning offer for your dream home.
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