How Much Do Real Estate Agents Make in Different States?CASAPLORERTrusted & Transparent
Whether you are in the process of buying or selling a home, hiring a real estate agent can make the process much easier and provide you with some peace of mind when handling the whole transaction. Real estate agents charge a commission for their services which make up a big portion of the seller’s closing costs. Learn more about how much real estate agents make in the U.S. and what goes into the commission.
What You Should Know
- Real estate agents typically make money from the commission charged on selling a property
- The commission is paid by the seller of the house for both the buyer agent and the listing agent. This commission is typically 5% - 6% of the house’s price
- The commission is split between the buyer’s real estate agent, the buyer’s agent’s broker, and the seller’s agent and their broker
- Real estate agents with more experience, a wider network of connections, and more qualifications typically earn more than others
- Some industries in real estate are more profitable than others, and agents working in these industries tend to earn more
How much do Real Estate agents make?
According to the U.S. Bureau of Labor Statistics, the median pay for real estate agents and brokers in 2020 in the U.S. was $51,220. Specifically, the median annual wage for real estate sales agents in May 2020 was $49,040 and for real estate brokers, it was $60,370. However, this is just a median and the top 10% of real estate agents end up making more than $110,000 per year.
Instead of an annual salary, real estate agents earn their income through the commissions charged which are collected by the brokers that they work for and are then split between the firm and the real estate agents involved in the deal. The commission charged typically ranges from 5% - 6% of the sale price of the house.
How do real estate agents make money?
Seller agents or listing agents are hired by people who are looking to sell their house and they help in finding potential buyers to get the seller the best possible deal. On the other hand, buyer agents are hired by people who are looking to purchase a house, they protect the buyer’s interests and assist them in finding a home. Both agents earn a commission for their services. Sometimes, buyer agents might get a higher cut from the commission as the process of finding a house can last months before their client is convinced and decides to purchase a house. However, usually, the commission is split evenly.
How much one real estate agent makes depends on a number of factors:
- 1. Number of houses sold - Since real estate agents get paid by commission, they only earn money when a house is sold. Therefore, the more houses a real estate agent sells, the higher their income. However, there are companies such as Redfin that pay their real estate agents a salary plus bonuses instead of commissions. The bonuses are still tied to the number and prices of houses sold. Redfin reports that the median income earned by its agents in 2020 was $112,000, more than double the amount earned by traditional agents.
- 2. Years of experience - When a new real estate agent first signs with a brokerage firm, they don’t have much negotiation power regarding the commission split. As real estate agents gather more years of experience, the brokerage typically offers them a bigger portion of the commission. According to the National Association of Realtors, while the median yearly income of all realtors for 2020 was $49,700, realtors with more than 16 years of experience averaged $86,500 for the year.
- 3. Niche - Depending on the niche a real estate agent specializes in, his or her yearly income can prove to be higher or lower than the average. Some real estate niches prove to be much more profitable than others. For example, commercial real estate, in general, offers distinct higher profits than affordable housing.
- 4. Location - The yearly income of a real estate agent will also depend on the real estate market that the agent is operating in. Real estate markets of New York or California, for example, consist of high-priced properties. Since real estate agents get paid by commission on the house price, higher prices mean higher income in commission.
States with the highest salaries for real estate agents in 2020
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- 5. Advertising Costs - Most real estate agents, especially the ones with a smaller network of connections and client base, spend a lot of money in getting their business noticed through advertising. Whether it is through social media or large billboards over the city, this advertising costs money, which takes from the income a real estate agent makes. Some brokerages also have marketing fees that their real estate agents have to pay.
Who pays the commission?
The seller of the house pays the commission of the listing agent and the buyer’s agent. This does not mean that they each get 5% - 6% of the sale price of the house. It rather means that the commission is split between the two. The whole commission is negotiated between the seller and the listing agent, who after the house is sold, splits this commission with the buyer’s real estate agent. The seller can try to negotiate a lower commission with the listing agent by either offering to do some of the tasks the real estate agent is responsible for, such as hosting open houses on their own, by trying to negotiate a discount with the agent's broker or by selling the house in periods when the real estate market is slow.
Even though the homebuyer does not pay anything extra, sellers usually incorporate some of the commission charged into the home price. So technically, when the buyer pays for the house, they are paying for a portion of the commission that the agents’ get as well.
There are some occasions when one real estate agent represents both the buyer and the seller. This is called dual agency. When this happens, the real estate agent does not have to split the commission with another agent, so the dual agent ends up making more money on the transaction. However, it can be argued that there is a conflict of interest in this scenario, which is why the practice of dual agency is illegal in certain states such as Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas, and Vermont.
Types of Real Estate Agents
Real Estate Agent vs. Real Estate Broker
To become a real estate agent, one has to pass their state’s required examinations and get a real estate license. Brokers, on the other hand, apart from having a real estate license, need to have a broker license, which means that they need to go through additional exams and fulfill extra requirements. Because of this, brokers are perceived to have more knowledge and expertise in the area of real estate and in general earn more. As we mentioned before, according to BLS, the median annual wage for real estate brokers in 2020 was approximately $11,000 higher than that of real estate agents.
Real estate agents are not allowed to work independently, they need to work under a brokerage firm. In a real estate brokerage firm, brokers are the ones who manage the real estate agents’ activities. The real estate agents are not permitted to receive the commission directly from their clients. The brokers are the ones that collect the commissions and then split them among the agents that contributed to a real estate deal.
Realtor vs. Real Estate Agent
Realtors are the real estate agents and brokers who are members of the National Association of Realtors (NAR). Since realtors have to pass through additional examinations than real estate agents or brokers who aren’t a part of NAR, they are perceived to have more expertise and knowledge of the real estate market. Moreover, realtors have to pay an annual fee of $150 and abide by the NAR codes of conduct and ethics. However, they also get certain benefits such as access to the Multiple Listing Service (MLS).
How is the commission split?
First, if there are two agents involved in a deal, the seller’s agent and the buyer’s agent, the commission is usually split equally between the two. So if the commission is 6%, the seller agent’s brokerage receives 3% and the buyer agent’s brokerage receives 3%. However, the brokers under which the agents work, keep a part of the commission from every transaction. The split of the commission between the agent and the broker is usually 60/40, however, it can also be 50/50, 70/30, or any other ratio negotiated. However, there are some brokerages that ask for a flat fee instead of a cut from the commission.
Imagine that a house was sold for $300,000. The commission is 6%. In this scenario, the seller agent’s brokerage would collect 3% of the home’s sale price, which is 3% * $300,000 = $9,000 and the buyer agent’s brokerage would collect the same amount. If the commission between the agent and the broker is split in the ratio of 60/40, they would each receive:
Biggest Real Estate Brokerages in the U.S.
Commission Split: Keller Williams agents get 70% of the commission and 30% goes to the broker. There is also a franchise fee of 6% which is capped at $3,000. So technically, the commission is split as 64% agent, 30% broker, and 6% franchise fee. However, Keller Williams places a cap on the amount the agent commission is split with the broker and the office. This cap amount varies across offices and by area. Once the real estate agent pays the cap amount which typically amounts to the commission of 8-10 homes, the real estate agent gets to keep 100% of the commission. Therefore, after the agent reaches the cap amount for the broker and the franchise fee, everything they earn after that belongs to the agent.
Commission Split: At RE/MAX, every real estate agent has the option of a commission split 95/5 between the agent and the office. The 95/5 commission plan comes together with a Desk Fee that is to be paid monthly. Thus, agents with this plan have 5% of the commission withheld by the office as well as a monthly fee. Other commissions plans include splits 80/20, 70/30, and 60/40. These plans are capped at $23,000. Once the agent reaches this threshold, they transfer to the 95/5 plan for the remainder of the year.
Commission Split: Coldwell Banker does not have a company-wide policy regarding its commission split, its caps, or desk fees. The rates and fees are discussed with the broker depending on the agent’s level of experience and other factors. No matter how the commission is split, Coldwell Banker charges a franchise fee of 8% to all of its agents even after they reach the cap for the year.
Commission Split: Compared to other real estate brokerages, Century 21 offers a lower commission split of 50/50 to new agents. As real estate agents become more experienced and bring in more sales, the commission split increases upon negotiation. An advantage of Century 21 is that it does not have any desk fees, which is most beneficial to new real estate agents who do not have to pay any fees before making a sale. However, there is an 8% franchise fee.
Commission Split: There is no set policy on commission splits that Berkshire Hathaway HomeServices offers to its real estate agents, however, some sources state that the commission split starts at 60/40. There is also a royalty fee of 7%-8% on profits, which is deducted from the whole commission before it is split between the real estate agent and the broker.
In terms of compensation. Redfin does not pay its agents through the traditional way of splitting a commission. Instead, Redfin’s real estate agents compensation is made of a salary and bonuses. A first-year agent’s income at Redfin usually consists of a 30% base salary and 70% bonuses based on the number of home purchases or sale transactions that they make. The total salary largely depends on the type of agent you are. There are lead agents, associate agents and partner agents.
Lead agents are considered Redfin employees. They are the ones we have been referring to until now. Their income is made of a base salary and bonuses. According to Redfin, a lead agent earns approximately $100,000 by their second year at Redfin. However, this depends on location and other factors. Associate agents are considered contractors and are the ones who host tours, open houses, and home inspections. Associate agents are paid by the number of tours they do over the evenings and weekends. The pay ranges from $60 up to $120 per tour. Partner agents are licensed by other brokerages but get referrals for houses by Redfin. When they close on the sale or purchase of a home, partner agents pay Redfin 30% of the commission earned.
Redfin also promises to cover all the traditional costs of doing business for lead agents, such as: MLS dues, association fees, license renewal fees, transportation, marketing, training, together with no brokerage fees and self-employment taxes. Redfin estimates that these costs save the real estate agents an amount of $14,000 per year. On top of that, the company also offers premium benefits which are worth $11,000 per year.
The salary of real estate agents working at Redfin increases as they gain more years of experience. The company states that the average income of a Redfin agent is twice that of a traditional agent reported by the NAR. However, Redfin agents also handle three times as many clients as a traditional real estate agent. While the company prides itself on this as it showcases the expertise of its agents, there are concerns of the quality of service the agent delivers while handling this many clients and the number of hours an agent should work in order to earn the competitive average income.
How to increase your income as a real estate agent
There are a number of ways that real estate agents can earn more which mostly involve either taking on more responsibilities or advancing their education.
1 - Do short sales - A short sale, which is a sale when a homeowner is underwater on their mortgage, is a difficult transaction for sellers as their mortgage lender might not approve it. Real estate agents looking to make additional sales and increase their income can facilitate short sales by negotiating with the lender to accept a lower amount for the loan. In this case, you would be handling all the legal procedures associated with the short sale and the seller would get their property relisted as a short sale in the marketplace.
2 - Become a property manager - Real estate agents who want to earn some passive income instead of basing all of their earnings on the sale of houses, can choose to also work as property managers. A property manager helps maintain and administer a building that is rented out in a similar way that a landlord does. Since sometimes the actual landlords of the properties do not have the time to manage them, they hire property managers. In return, property managers get a percentage of the rent for their services.
3 - Complete BPOs - Real estate agents may earn some additional income by completing Broker Price Opinions which are basically an assessment and evaluation of the market value of a house. BPOs are not official appraisals and cost around $50 or more. However, you need to make sure that you are allowed to complete a BPO report as a real estate agent because in some states it is illegal for agents to perform this job.
4 - Become a commercial real estate agent - Commercial real estate agents are expected to complete more training and be much more knowledgeable about the industry of real estate than residential real estate agents. This expertise is rewarded by earning more on the sale or lease of a commercial property. Yes, commercial real estate agents get a commission when they help to facilitate the leasing of a property. The median yearly income for a commercial real estate agent is almost double that of a residential real estate agent. However, it is worth mentioning that while commercial property transactions are generally higher in value, they are lower in volume compared to residential properties.
5 - Join NAR - As mentioned above, it pays to continue your education and receive more certifications. By passing the examinations to join NAR, you become a realtor and are viewed as having more credibility and working with higher standards of ethics.
6 - Become a broker - You will need a broker’s license to work as a broker, however, the profession comes with a lot of benefits. First, brokers tend to earn more. The broker’s median annual pay for 2020 was $60,370, while the median annual pay for real estate agents was only $49,040, which is more than $11,000 less. Second, as a real estate agent, you are not allowed to work independently, you are legally required to work under a broker. Brokers, on the other hand, are allowed to open their own offices and hire real estate agents.
There are pros and cons to becoming a real estate agent. Whether the challenge is worth it for you depends on what importance you place on the aspects of the job.
1 - You can earn a lot of money - Depending on the number of house purchases or sales you close throughout the year, your income will be determined. There is no limit to your yearly earnings, contrary to other jobs that can have a fixed salary every year that increases with experience and seniority.
2 - You can set your own schedule - Unlike many other professions that have a fixed work schedule, as a real estate agent, you get to decide the hours you want to work and fit your other commitments around it. This gives people a lot of freedom and control of their professional and personal lives.
3 - You get to work with people - If you are a social person who enjoys talking to others and meeting new people on a regular basis, then becoming a real estate agent is the choice for you. Whether it is clients or other professionals from different fields, as a real estate agent, most of the time, you will get to work with people.
4 - You can help people achieve their goals - Becoming a homeowner is a goal that many people have. Being such a large investment, it is important for them to find their perfect home in which they will probably spend most of their lives in. As a real estate agent, you get to help these people achieve this goal by listening to their preferences and finding options that suit their needs.
1 - Uncertain yearly income - As we mentioned before, your income is decided by how successful you are at closing deals. However, different years may yield different results. While not having an upper limit on how much you can earn is great, it also means that there is no lower limit either. Thus, the job of a real estate agent might not provide you with the security of traditional professions that have an annual salary.
2 - Patience is required - In order to be successful as a real estate agent, you need to have a lot of patience and put effort into building your expertise and network. Most real estate agents give up in their first year as they fail to realize that there is a lot of work that needs to be done in order to close only one deal. However, the more time you spend doing this work, the better you become at it and the more your network expands.
3 - You have to work with people - The nature of the job requires you to interact with different people on a daily basis. However, some might be more difficult to work with than others and in order to keep the business going, you will have to acquire skills on how to deal with this type of clients.
4 - You will not always succeed - It can be very discouraging when you put a lot of effort into prospecting and marketing your business, and most of your leads reject you. Some people believe that they do not need a real estate agent to purchase or sell a home, or they are only willing to work with recommended agents. Also the competitiveness of the field makes landing a client much more difficult. Thus, real estate agents need to be confident and not be brought down by rejections.
Making more than $100,00 a year as a real estate agent is doable, however, how easy it may be depends on multiple factors that have to do with your motivation, how many hours you put in the job, your expertise, experience level and the area you work in. Some people choose to work as a real estate agent only part-time, thus it is more difficult for these individuals to make more than $100,000 a year. But most importantly, the more expertise and knowledge you build, the easier it becomes to make more than $100,000 in real estate.
Depending on the state you are getting your real estate license, some exams can be harder or easier to pass than others. Generally speaking, real estate exams do not require any intuitive thinking, it is a test of knowledge. Thus, you have to study and be prepared to answer questions on real estate principles, state and federal laws related to real estate, real estate finance and other topics depending on the state. While many people do fail on their first try, this does not necessarily mean that the exams are difficult, rather it means they lacked the preparation. However, some states such as Colorado and Texas are known to have more difficult exams and more requirements to get your real estate license than other states.
Real estate agents get to choose their own work schedules, which means that they can work in the evenings or weekends if they want to. Thus, it allows you to keep your main job while also exploring the field of real estate. However, investment is needed to get your real estate license and market your business in order to generate some income from this side job, so if you do not plan to put in the effort, time and money to get your real estate business going, then it might not prove profitable as a side job in the long run.
With 206,308 active real estate agents, California was the state with the highest number of real estate agents in 2020. According to the June 2021 reports from the NAR, Florida was the state with the highest number of realtors, exactly 205,589. It was followed by Californi (203,424), Texas (141,003) and New York (63,883).
Looking at the statistics from the U.S. Bureau of Labor Statistics, Virginia ranks high on all the three variables describing the real estate agent market in 2020. Virginia was one of the states that ranked among top for highest employment level, highest concentration of jobs and location quotient and high annual mean wage.
Since real estate agents earn a commission of 2.5% to 3% on every house sale or purchase they close and typically 40% of a beginner agent’s commission is paid to the broker. That means that in every transaction, a real estate agent makes somewhere between 1.5% (2.5% * 60% ) to 1.8% (3% * 60%). Thus to make $100,000, a real estate agent would have to facilitate the sale or purchase of $5,555,555 to $6,666,666 worth of property.
According to Zillow, the average U.S. home price in May 2021 was $287,148. This means that to make $100,000, a real estate agent would have to sell approximately 20 to 24 houses. This is an approximation based on the average home price in the U.S.. This means that in areas where house prices are higher, you would need to sell less homes to make $100,000.
Yes, you can definitely make money as a real estate agent in your first year, but a lot of patience, hard work and determination will be needed. While the income for real estate agents in their first year is typically much lower than the median pay for all real estate agents, earnings are expected to scale up much faster during your first three years on the job. What also contributes to first-year real estate agents having low income is the commission cut paid to the brokerage. Agents without experience have little negotiation power when it comes to the commission split.
It is true that a lot of real estate agents fail in their first year. However, this comes from a number of factors that can be avoided prior to starting a career in real estate. First, beginner real estate agents fail to build a realistic business plan that takes into account their current resources, their future goals and how they plan to achieve these goals. Others who make real estate a full-time job from the beginning may quickly run out of money, since it takes some time before you are able to close a deal, so you will need some savings to support yourself financially in the meantime. Lastly, some real estate agents underestimate the power of marketing, which is crucial when you are just starting out and do not have a proper network just yet.