You’ve just sold your house.
You take a look at the closing statement that itemizes all of the money that’s changing hands, and you can’t help focusing on one number: realtor commissions.
“I have to pay her $10,000 (or $20,000, or $30,000) out of my profit? Damn! How much does she make in a year, anyway? She must make hundreds of thousands of dollars!”
You’re probably not even close. As the ancient Greek aristocrat Phaedrus was quoted in Plato’s writings: Things are not always as they seem.
Sure, just like in any industry, there are superstars who get rich. Successful real estate agents who specialize in multi-million dollar Southern California properties make huge amounts of money. Music producer David Geffen sold his Beverly Hills estate to Amazon’s Jeff Bezos for $165 million in 2020. A 3% commission on that sale would be almost $5 million.
But struggling actors don’t make the $100 million that Will Smith got for starring in Men in Black 3; many find it difficult to pay their rent. And most real estate agents don’t make millions of dollars a year, or even hundreds of thousands. Like most of us, they may earn just enough to live comfortably – or they may have trouble making ends meet.
How can that be, when every “payday” yields thousands of dollars in commissions?
Here’s the real story on how much real estate agents make.
How Realtors Get Paid
Most real estate agents earn their money from the commissions that a home seller pays when the deal closes. If an agent doesn’t have any successful transactions during a month, they don’t get paid.
That shouldn’t be surprising if you’ve ever used a realtor to sell a house; you probably negotiated the agent’s commission before they started work on your listing. (If you didn’t, you should have.) Commissions don’t matter as much to home buyers, since their realtor’s commission is paid by the seller. But even if you’ve only purchased a house, you probably have a general understanding that your agent doesn’t get paid until you close on your new home.
This structure can work to the advantage of buyers and sellers. Their real estate agents are usually motivated to put in a lot of work, and long hours, to make sure a sale goes through. Otherwise, they don’t get a paycheck.
So working in real estate isn’t the cushy job it might seem to outsiders. Yes, agents may spend a lot of their time driving clients around, walking around properties with them, or hosting open houses – but they also spend hours doing research or completing paperwork, and lots of time visiting prospective clients and trying to sell their services. Most work long days, and many work seven days a week. Being a realtor isn’t a 9-5 job, and every long weekend or vacation may lower their income.
That is, unless the agent works for one of the newer companies in the market like Redfin. They pay their agents a relatively low salary (starting around $30,000), plus bonuses based on the commissions they bring in. The earning potential is generally lower for these realtors, but they may have a more “normal” life.
We’ve established, though, that the vast majority of real estate agents in America are paid on commission. How much do they actually make each year?
Bottom Line: Almost all real estate agents (unless they work for newer companies like Redfin) are paid on commission. The more deals they close, the more they make – and that means they work hard for the money. (Apologies to Donna Summer.) If they don’t sell any houses, they don’t get paid; that usually forces realtors who are bad at their job to leave the industry pretty quickly.
Realtor Commissions vs. Realtor Paychecks: Not the Same
Let’s get one somewhat-common misconception out of the way first. When you sell your house and a 5-6% commission is taken out of the final proceeds, your realtor isn’t getting a check for 5-6% of the final selling price. That number represents the commissions paid to both the buyer’s agent and the seller’s agent. By tradition, the seller pays both realtors.
So our starting point isn’t a 5-6% payday for the real estate agent. Each one collects 2½-3% percent of the total commission on a house. (We’re leaving aside the matter of lower commissions charged by discount brokers; the numbers may be different, but the process is the same.)
Here’s what might be the most important misconception of all: the agent who sold your house, or helped you buy one, doesn’t pocket all of that 2½-3% commission. There are usually other fingers in the pie.
To start with, very few realtors work on their own. They work for larger real estate brokerages. Say, for example, your home is being sold by a Keller-Williams agent. Unless their name is “Keller” or “Williams,” it’s reasonable to assume that the company they represent is going to make money on the deal when your house is sold.
What actually happens is that the agent commission is paid to the brokerage, not the individual realtor. The brokerage then pays the realtor their share, or “split,” which is most often 50%. Some superstar agents are able to negotiate a bigger split, beginners may receive less.
That’s not the end of the story. Many brokerages charge their agents fees for the services that employees in the main office provide (called something like a “desk fee”). Those fees can take 5-6% out of the agent’s split. And since realtors are usually independent contractors, they’re also responsible for paying their own expenses. Those include the money they’ve spent to list and market your home; gas, insurance and depreciation for their car; cell phone bills; liability insurance; and the courses they need to take to maintain their real estate license.
When all is said and done, the agent doesn’t keep all of the 2½-3% commission, or anything close to it. Their actual net pay (before taxes) on the sale of a house averages about 30-35% of the money that’s paid to their brokerage.
Let’s look at an example, based on the median U.S. home sale price of about $350,000 and a 3% commission rate.
Sale price: $350,000
Seller’s commission: $10,500
Realtor split: $5,250
Desk fee: $315
Out-of-pocket expenses: $1,000
Pro-rated annual expenses: $500
So in this example, the realtor doesn’t keep the $10,500 commission for the sale. They don’t even get their entire split of $5,250. When you deduct their other expenses, they collect less than $3,500 – and that’s taxable income.
The point here is not that you should feel sorry for the realtor. It’s simply that when you see a total commission number (for the buyer’s and seller’s agents) of $20,000 on your closing statement, you shouldn’t look at your realtor and get jealous. They’re probably taking home less than 20% of that money.
How much does it add up to in a year? That depends on a lot of factors.
Bottom Line: Most of the seemingly-huge commission you pay when you sell your home doesn’t end up in your realtor’s pocket. Half of it immediately goes to the buyer’s agent. Half of what’s left usually goes to the realtor’s brokerage. And after deducting all of the fees the agent has to pay – some associated with selling your home, some to pay their ongoing business costs – an individual realtor often ends up with less than one-fifth of the seller’s 3% commission.
So How Much Do Real Estate Agents Make Per Year?
The median income for real estate agents in America is around $50,000 – but there’s a lot more to the story.
One of the most important variables in figuring out realtors’ average incomes is where they work. We’ve already mentioned what the commission theoretically would have been on the Geffen-Bezos Beverly Hills estate sale: about $5,000,000 for each side.
That’s an outlier, of course. But if you spend your time helping clients buy and sell multimillion-dollar homes, you’re naturally going to make a lot more than an agent working in Harlington, Texas, where the median home price is less than $90,000.
It also matters where a realtor is based. Surveys show that the highest-paid realtors work in New York (New York City boosts those numbers), Texas (Dallas, Houston and oil country) and Hawaii (the highest cost of living in America). Those in Ohio, Arkansas and Montana make the least.
Once you factor out geography, the most important factor in how much a real estate agent makes is how many hours they work per week.
One study by the National Association of Realtors (NAR) found that agents who work at least 60 hours each week have median earnings of $100,000 per year. What if selling houses is just a part-time job? Those who work less than 20 hours per week have a median income of $8,930 per year. A different study conducted by an industry education site, Real Estate Express, found that realtors working a “normal” 40-50 hours per week had an average annual income of $68,817.
Experience matters, too. The NAR study showed that agents with two years of experience (or less) made an average of less than $10,000 per year, while those who’d been in the industry for 16+ years had a median income of almost $80,000. And the Real Estate Express study found that agents with more than 26 years of experience averaged more than $118,000 per year.
Many other considerations play a role in what real estate agents make, according to Real Estate Express.
- Those who specialize in the luxury home market, sales to foreign investors, and foreclosure sales earn the most money each year, followed by realtors who primarily work with commercial properties. Those who focus on affordable housing, or don’t specialize at all, make the least.
- Agents who are truly self-employed report the highest annual earnings; that makes sense, since they get to keep just about all of their commissions. Those who work for well-known, national brokerages earn about one-third less than those who work for themselves.
- Enjoying your work matters, too – and more than you might think. Realtors who say they’re “very satisfied” with their job earn an average of about $87,000 per year. Those who are only “somewhat satisfied” report annual earnings of about $50,000, and agents who are “not satisfied” only make about $28,000 per year.
So the next time you look at your realtor and feel jealous that they’re making tons of money by driving clients around all day, think again. They do a lot more work than that, and there’s a good chance they make even less than you do.
Bottom Line: The average real estate agent makes about $50,000 per year. But that number can be much higher or much lower depending on where they work and who they work for, how many hours they work per week, how much experience they have, and many other factors. Some earn well over $100,000 annually; others may make less than $10,000 per year.
Can You Avoid Paying Those High Real Estate Commissions?
No matter how much or how little your agent gets to keep, it’s still depressing to look at the bottom line and see that you’re paying thousands of dollars – or tens of thousands of dollars – in realtor commissions when you sell your house.
That leads many sellers to think about ways to avoid paying those commissions. Do any of them make sense?
The answer really depends on your knowledge, time, energy and goals.
The simplest way to save money is to shop for a discount broker, or try to negotiate fees with a full-service realtor. You won’t avoid paying commissions, but they’ll at least be somewhat lower.
One common way that homeowners try to avoid real estate commissions is to go the FSBO (“For Sale By Owner”) route. Here’s the most important statistic to remember, though: only about 10% of those who try a FSBO actually end up selling their house. The rest give up and hire a realtor, or simply give up, period. Selling a house on your own without real estate experience, or without the willingness and time to take a crash course on the industry, rarely ends well. It also doesn’t save the buyer’s agent 3% commission.
Another approach is to deal with real estate investors who buy your home outright, paying cash for a quick sale. There are several types of investors to choose from.
- iBuyers: These big companies like Opendoor and Zillow Offers make cash offers for homes in good condition, in selected cities. They don’t charge commissions, but do charge service fees that can cost even more than you’d pay to both the buyer’s and seller’s agents.
- Home Flippers: Some are locally-based individuals, while others are huge companies like HomeVestors (which operates under the name “We Buy Ugly Houses”). They make cash offers for homes in poor condition, which they’ll then fix up and flip to new buyers.
- “New-Age” Cash Buyers: These newer home investors, like SellYourHome.com, don’t charge commissions or fees, and purchase homes in any condition or any community. In many cases they can also close with lightning speed.
None of these investors will pay market value for your home; that’s what makes them investors. Home flippers pay substantially less than the other buyers, while iBuyers and New-Age buyers usually come much closer to paying full value.
Selling a home for cash is often the best alternative for two groups of homeowners: those whose homes are in bad shape and can’t afford necessary repairs, and those who have to move in a hurry due to financial or personal issues. But taking the right cash offer, from the right type of buyer, is one way to sell a house without paying realtor commissions.
Bottom Line: There are a few ways to avoid paying realtor commissions when you sell your house. Some are not easy to pull off, though, and you could easily lose more on the sale of your home than you’d save on commissions. These methods are best used by people with previous real estate experience, or those who need to sell their house in a hurry.
How Much Do Real Estate Agents Make: FAQ
Q: If agents generally make more working for themselves instead of a brokerage, why do most choose to work for someone else?
A: They greatly benefit from the name recognition of the large brokerage; most clients are more likely to rely on RE/MAX or Coldwell Banker than on “Sally’s Real Estate.” The big companies also provide office support that an independent agent wouldn’t have access to, without hiring employees.
Q: How do realtors get jobs selling multi-million dollar homes?
A: It’s usually not easy. Those who are in that fortunate position say they got there through a combination of experience, networking, the ability to meet and schmooze with wealthy clients, and a lot of luck.
Q: Do realtors really have to work 60 hours a week to make good money?
A: Not always, but think of realtors as small business owners. When someone runs their own business, it’s not uncommon for them to work 60, 80 or even more hours each week. In most cases, the more they work, the more they sell and the more they’ll make. It’s the same for real estate agents who want to earn a high salary. The more hours they work, the more clients they can service, the more homes they’ll sell and the more commissions they’ll earn.