According to Indeed data as of 2021, real estate agents nationally earn an average of $92,557 per year. Beginning agents can expect to earn around $83,500 annually.
Those numbers should not be taken out of context, however, as they do not take into account the expenses associated with being an independent contractor. The National Association of REALTORS® (NAR) reported that the median gross income of REALTORS® was $43,330 in 2020.
Annual business expenses, including brokerage fees, account for the disparity in these numbers. Most real estate agents will choose to enter into an agreement with a brokerage, giving up a portion of their commissions and paying fees in exchange for marketing, administrative, and legal services and protections that the brokerages provide them. Taxes, health care, and other business expenses should also be taken into account.
There are a number of other factors that will affect what a real estate agent makes in a year, including whether they work full time or part-time and how many years of experience they have. The NAR Quick Real Estate Statistics shows that in 2020 most REALTORS® worked 35 hours per week and had a median experience level of 8 years.
In truth, real estate agents work hard for their income, and their success rate depends largely on how much work they put in. Let’s take a look at exactly how real estate agents earn their money and break down what factors can affect that bottom line.
How Do Real Estate Agents Earn Money?
Real estate agents earn a commission on every real estate transaction they facilitate. It is important to know that most real estate agents will not get paid at all if a sale does not go through, no matter how much work they did.
The commission for a sales transaction is typically 6% of the total cost of the property and split evenly between the buyer and seller agents, but commission splits and fees will vary from transaction to transaction and can be negotiated.
The commission will be paid directly to the agent’s broker, who also gets a split of the commission. This number will vary from agent to agent and brokerage to brokerage, typically on a range from 50/50 to 80/20.
As an example, a $500,000 house will have a 6% commission of $30,000. That will be split evenly between the brokerages of the buyer and seller agents at $15,000 each. If the agent has negotiated a 70/30 commission split with their brokerage, the agent will earn $10,500 and the brokerage will earn $4,500.
Real estate agents can also earn fees by assisting with rentals, writing Broker Price Opinions (BPOs), or referring clients to agents in another service area, though these fees are often nominal.
It is important to remember that the vast majority of real estate agents are independent contractors, rather than employees. These entrepreneurs have to front their own business costs and do not have benefits or paid time off. Because of this, annual take-home earnings will vary based on a number of factors.
1. Experience and Education
Experience counts for a great deal in the real estate industry. The more years of experience an agent has, the more industry knowledge and contacts they can draw from, resulting in a much higher rate of listings won and closed sales. Agents with a proven track record of success can also often negotiate higher commission splits with their brokerage. There is something to be said about the customer service experience as well, and highly rated agents will provide the best.
Experience also helps real estate agents to know how many home sales will be required to reach their financial goals for the year. As stated above, if an agent doesn’t work, they will not get paid. And, the more houses an agent sells or helps their clients buy, the more money they will make.
Along with experience, education can also help a real estate agent reach those higher numbers, through titles and designations that give them the leg up on the competition.
Becoming a REALTOR® will garner agents a title with a great deal of clout. A REALTOR® is a licensed real estate agent who is also a member of the National Association of REALTORS® and is bound by their strict code of ethics. REALTORS® also belong to boards on the state and local level, affording them greater access to market data and the multiple listing service (MLS).
Agents can also earn designations and certifications in areas of real estate they wish to specialize in. Some examples include Accredited Buyer’s Representative (ABR®,) Certified Residential Specialist (CRS,) NAR’s Green Designation (GREEN,) Graduate, REALTOR® Institute (GRI,) and Seller Representative Specialist (SRS).
2. Opportunity
Another factor that will affect how much a real estate agent makes each year is how many opportunities they have to transact. Both location and the strength of an agent’s network will influence how many opportunities they have to win a listing or work with buyers.
I’m sure you’ve heard the saying that the secret to real estate success is “location, location, location.” This holds true for real estate agent success as well. Agents who work in rural or economically depressed areas will not have the same opportunities that an agent in a large metropolitan area will have.
Selling homes in more expensive neighborhoods will also result in a higher yearly gross commission, although those areas often bring with them a higher business overhead and cost of living.
Another way real estate agents can generate more opportunities is by having a strong network of business connections and past clients that they nurture and regularly interact with.
These networks help funnel word-of-mouth referrals to bolster the agent’s business and provide business partners to aid in closing deals and getting over hurdles the agent might encounter during a real estate sale.
3. Business Expenses
When discussing how much real estate agents make, it’s also important to talk about their business overhead, the fees and expenses they have to front as independent contractors in order to conduct business and market their services and their listings.
The most successful real estate agents definitely take advantage of any and all word-of-mouth advertising they can generate through their network, but to be truly successful, it will be necessary to spend money on self-promotion. From Facebook ads to business cards, signage, and print advertising, all of that cost has to be paid out of pocket.
Real estate agents will also often front some or all of the cost for any property marketing that needs to be done in order to sell their listings and are not reimbursed unless that listing sells. These costs include things like professional photography, ads, flyers and custom postcard mail-outs.
Beyond the promotional materials, real estate agents also have business expenses to consider, including cell phone bills, car maintenance and gas, office supplies, and gifts for clients.
They often also owe fees to their brokerage, both the agreed-upon portion of their commission as well as administrative fees, which are usually charged annually or monthly, to cover Errors and Omissions Insurance, office or technology fees, and marketing fees. The fees charged and when they are due will vary from broker to broker.
Who Pays the Real Estate Agent Commission?
Real estate agent commissions are usually paid by the seller at closing. But, that money is given to the seller by the buyer, so it could be said that both pay.
Sellers who use a real estate agent do have to take the commission into consideration when looking at how much money they will make from the sale of their home or property. In a strong seller’s market, sellers can price their home to offset that expense and make sure they walk away with the full amount they wanted. In a buyers market, this may be a harder feat to accomplish.
How Is The Agent Commission Set?
An agent’s commission is usually set when the listing agreement is signed. Most agents have a set commission they ask for (3% is standard) but it is always negotiable and can fluctuate due to a number of factors including current market conditions and specific client situations.
A real estate agent may choose to offer a discount to their selling client who also intends to use them to buy a new home, or if they are representing both the buyer and seller in the same transaction. Agents may also offer discounts to secure a highly competitive listing, or in a hot market where listings sell fast and the agent doesn’t have to do as much work.
Agents can also choose to accept a discounted commission counter-offered by their prospective client. What, if any, discounts an agent will offer or accept is at the agent’s discretion and have to be agreed upon by their brokerage as well.
What Do Real Estate Agents Do?
Real estate agents are licensed professionals and industry experts who act as an advocate and guide for their clients to ensure the absolute best outcome for their real estate transaction.
They will utilize their local market knowledge, education, and extensive experience to navigate the many hurdles that often happen during a real estate sale, from listing to close.
For sellers, they will appraise your home to establish a fair market value to help you decide on a listing price, and will market your home to potential buyers. Buyers can expect their agent to do research on your behalf to find available homes that meet your criteria and to take you to view those homes.
They will offer guidance, answer questions, negotiate with the other party on your behalf, prepare the contract, troubleshoot any issues that might arise, and walk you through every step of the process.
Why Is a Real Estate Agent Worth the Commission?
While it can be tempting to forgo the added expense of hiring a real estate agent, it is well worth the cost to have a seasoned professional on your side throughout the complicated, and sometimes confusing, real estate transaction process.
If you are selling your home, a real estate agent, and a REALTOR® in particular, will give you the added exposure you need to get your home in front of the maximum number of buyers. They will also have the expertise to help you market your home to its fullest potential.
If you are buying, your REALTOR® will utilize their network and access to the Multiple Listing Service to find the perfect property for you and will write up any offer to sellers.
Whether you are selling or buying a home, a real estate transaction is a complicated legal process. Having an experienced and educated partner in the transaction will ensure that you are not making any mistakes that could cost you in the long run.
From start to finish, a REALTOR® will be able to guide you through everything from the paperwork to option period to the closing process, answering questions and removing obstacles along the way to get you to a successful conclusion.
So, How Much Does The Average Texas Agent Make?
The real estate market is booming nationwide in 2021, so if you are considering a career in real estate, now might be a great time to make the move. The Texas real estate market is particularly strong and the 2021 housing forecasts predict that is not about to change.
What you can earn as a real estate agent will vary depending on the factors mentioned above, but let’s take a look at what the average REALTOR® can earn in our main areas of service.
We will be using data gathered by Indeed as of August 2021. Most of our cities were on par with the reported national average, and with the Texas state average of $91,241 per year.
CONCLUSION
If you want to get your real estate license in a big city with plenty of different areas and selling opportunities available, then consider Dallas. Real estate agents in Dallas make about $87,354 per year, which meets the national average.
While these are the averages, remember that there is no limit to how much a real estate agent can make. Building a reputation in your area and becoming an expert in the field will render no limits to your annual income.
If you’re interested in Texas real estate as a career path, you have to start with getting your license. Start your journey with our Texas pre-licensing course today!
