Real estate agents not only play a vital role in conducting property transactions, but also provide valuable expertise to buyers and sellers. Their compensation mainly depends on the commission they earn for their services. Have you ever wondered how much commission a real estate agent makes when facilitating the sale or purchase of a property?
This article will examine the real estate agent commission structure as well as the different factors that can impact a real estate agent’s income.
Real Estate Agent Commission
The commission structure for real estate agents influences their gross income and is based on a percentage of a property’s final sale price — usually around 5% to 6%. The seller’s agent (also called a listing agent), the buyer’s agent, and their respective brokers, who oversee the transaction, then split the total commission amount.
If a residential property sells for $500,000 with a 6% commission rate, for example, the commission would total $30,000. If the seller’s and buyer’s agents evenly divide the total commission, each would earn $9,000.
The brokers who oversee the transaction and provide support to the agents will then receive a portion of the commission. If an agent in the example above has a 70-30 split agreement with their broker, the agent’s commission would be $6,300 and the broker would receive the remaining $2,700.
Commission rates may vary, and negotiations are possible in some cases. Depending on their transaction agreements, agents also can earn annual, weekly, and hourly commissions.
How Much Does a Real Estate Agent Make Per Year?
To calculate an agent’s take-home pay, take their gross commission income (GCI) and subtract any broker splits and business expenses. Annual incomes may vary. Currently, the median annual income for agents is $49,980 based on data from the US Bureau of Labor Statistics. This means half of all agents earn more than this while half earn less.
To learn more, read our How Much Does a Real Estate Agent Make Per Year article.
How Much Does a Real Estate Agent Make Per Week?
To determine an agent’s weekly income based on the median annual income of $49,980 (as noted above), divide the median annual income by the number of weeks an agent works in a year. If we assume an agent works 52 weeks per year, their estimated weekly income would total $961.15.
Note that weekly income may vary, depending on the number of transactions an agent completes and their commission earnings per transaction.
For more details, see our How Much Does a Real Estate Agent Make Per Week article.
How Much Does a Real Estate Agent Make Per Hour?
To determine an agent’s estimated hourly wage, divide the annual median income by the number of hours they work in a year. Importantly, agents often work irregular hours and may have flexible schedules due to the nature of their profession.
If an agent works 2,080 hours in a year, for example, that’s equivalent to an average of 40 hours per week. To compute the agent’s hourly wage based on the median annual income of $49,980, divide that annual income figure by 2,080 hours. The resulting hourly income is approximately $24.02.
To learn more, check out our How Much Does a Real Estate Agent Make Per Hour article.
Other Factors Influencing Real Estate Agent Salary
Because real estate agents earn commissions vs. a fixed salary, their earnings can vary significantly based on many factors. Below are some of the key factors that can influence real estate agent salaries.
- Experience: The national average salary for agents is around $86,356 per year. With time, experienced agents often build a reputation and a solid client base that can lead to a higher earning potential
- Location: The real estate market differs from one area to another, and agents operating in high-demand markets or affluent neighborhoods generally have the potential to earn higher incomes. Metropolitan areas with robust real estate growth usually offer more opportunities compared to smaller or less active markets
- Sales Performance: Agents who consistently achieve a high sales volume and complete higher-priced real estate transactions tend to earn more. Successful agents understand the art of negotiation, possess excellent communication skills, and have a deep knowledge of the local market
- Market Conditions: During periods of high demand and low inventory, prices and commissions tend to rise. This can potentially lead to higher agent earnings. During a slower market or economic downturn, agents may find it more challenging to close sales and experience a decline in their income
Understanding these factors will enable you to make informed decisions and develop strategies to maximize your income within the real estate industry.
Real estate agents often incur various expenses directly related to conducting their business. Some common variable expenses associated with this line of work include:
- Licensing Fees: To maintain their real estate license and keep it in good standing, agents must comply with their state’s regulations by completing continuing education (CE) requirements. This will include paying for the courses as well as the license renewal fees
- Professional Membership Dues: Agents frequently join professional organizations, such as the National Association of Realtors (NAR) and multiple listing service (MLS) platforms, which charge membership dues or fees
- Office Supplies and Equipment: Agents who operate independently or have their own brokerage company may incur office and administrative expenses. These can include rent or mortgage payments for office space, utilities, office supplies, technology tools (e.g., computers, customer relationship management software, and smartphones), internet services, and insurance premiums
- Marketing and Advertising Costs: These expenses may include online advertising, print materials, signage, professional photography, virtual tours, and staging costs. Marketing expenses can vary based on the scope and reach of an agent’s promotional efforts as well as local market conditions
These expenses are just part of conducting business in the real estate market, and they may vary based on an agent’s circumstances and specific approach. Understanding and managing these variable expenses is critical for maintaining profitability and success in your real estate career.
How to Become a Real Estate Agent
To become a real estate agent, you must take several steps to get your real estate license. These include:
- Complete pre-licensing education. First, you must enroll in a pre-licensing course approved by your state’s real estate commission or similar authority. These courses provide the foundational knowledge required to navigate the industry.
- Pass the state licensing exam. After completing your pre-licensing education, you must pass your state’s real estate licensing exam. This test will assess your understanding of real estate laws, regulations, and practices.
- Undergo a fingerprint-based background check. In many states, aspiring agents must undergo a background check and provide their fingerprints as part of the application process.
- Submit your license application. The next step involves submitting your license application to the appropriate licensing authority in your state. This application process typically involves providing your personal information, proof of pre-licensing education, and licensing exam and background check results as well as paying any required fees.
- Join a brokerage company. New licensees must work under the supervision of a licensed brokerage. Joining a brokerage company will give you access to resources, training, mentorship, and networking opportunities that can accelerate your professional growth.
- Complete post-licensing education. Some states have post-licensing education requirements that newly licensed agents must complete within a specified period after their initial licensure.
Obtaining a real estate license will open doors to various opportunities within the industry. As a licensed agent, you can represent clients in buying, selling, renting, and leasing properties — all of which can lead to increased earning potential and career growth.
For real estate pre-licensing education classes, StateRequirement recommends:
Alternatively, check out our state-specific Real Estate Salesperson Licensing page.
Real Estate Agent Commission FAQ
How much commission do most real estate agents make?
Real estate agents earn a commission based on a percentage — usually 5% to 6% — of a property’s final sale price. Commission rates can differ, though, depending on factors like market conditions, location, and the specific agreement between an agent, their broker, and their client. See our How Much Does a Real Estate Agent Make Per Sale article for more information.
Who sets the rate of commission?
Real estate agents charge commission rates that they agree upon with their clients — often the property sellers. The average real estate agent commission rate isn’t set by any specific governing body or regulation. Instead, it’s determined through mutual agreement between an agent and a client and can vary from one transaction to another.
What percentage do most realtors take?
Most realtors take a commission of 5% to 6% of a property’s final sale price. However, the specific commission percentage may differ. Realtors are licensed real estate agents and real estate brokers who are members of the National Association of Realtors (NAR).
Are real estate commissions fixed or negotiable?
Real estate agent commissions are negotiable between an agent and their client. While different markets have different customary commission rates, they aren’t set in stone. Agents may be willing to adjust their rates based on a property’s value, current market conditions, competition, and other circumstances. For more information, check out our Real Estate Agent Salary article.
Can a real estate agent earn a higher commission?
Yes. It’s possible for an agent to earn a higher commission in certain situations. For example, agents who sell luxury properties or handle complex transactions may negotiate a higher commission rate given the unique nature or higher value of the property involved.