How Much Money Do Real Estate Agents Make?

If you're considering a real estate career, you should know this: with hard work, dedication, and education, the sky's the limit for earning potential.

Most real estate agents are paid on a commission basis, with base salaries being rare. Agent income depends on numerous factors, including commission splits, number of sales, and the state of the market.

Who gets paid

To understand how real estate commissions work, it is essential to know how a real estate brokerage works.

When you become a real estate agent, you will need to find a sponsoring broker. Real estate brokers are agents who meet additional standards for industry experience and education. With these higher credentials, they can hire other agents to work under them.

Brokers earn commissions from clients and split them with agents. Real estate agents cannot work for themselves or take commissions directly from clients. They must work at a brokerage and split commissions with the designated broker. They get paid commissions only through their sponsoring broker.

How commissions work

When an agent lists a property, the listing broker and the seller sign a listing agreement. A listing agreement is a contract that states the commission rate, which is usually a percentage of the listing price.

The commission rate is negotiated between the listing agent and the seller. The listing broker may state the rate of commission they want, but this rate is always negotiable. Many commission rates fall between 4% and 6%.

The listing agreement also establishes whether the listing broker will share the commission with a buyer's broker. Listing brokers often opt to share commissions because it incentivizes other brokers to share the listing with potential buyers. This significantly increases the chance the property will sell.

The seller pays the commission to the listing broker at closing, who may split it with the buyer's broker. The two brokers usually split the commission down the middle. Then they share the commission with their agents. Most commissions are split between four parties:

• Listing agent — the real estate agent that lists the property
• Listing broker — the broker that the listing agent works for
• Buyer's agent — the agent that represents the buyer
• Buyer's broker — the broker that the buyer's agent works for

The agents receive a percentage of the commission from their brokers. This percentage varies by broker. A typical split for a new real estate agent is 50/50, with top-producing agents getting better splits, such as 60/40, 70/30, or more.

Examples

Let's say you list a property for $400,000 with a 6% commission. When the home sells, your listing broker gets paid 6% of $400k, or $24,000. Half goes to the broker of the buyer's agent, so each broker ends up with $12,000. Since you and your broker have agreed upon a 60/40 commission split, you will get 60% of the $12,000, or $7,200. Your broker will get 40% of $12,000, or $4,800. The commission split between the buyer's agent and the broker of the buyer's agent is 50/50, which leaves them with $6,000 each.

Let's break down one more scenario:

Other scenarios

Sometimes the listing broker gets 100% of the commission. If a broker lists the property and finds a buyer, they may get the whole commission. But in many states, dual agency is prohibited; that is, a broker cannot negotiate on behalf of buyer or seller when representing both. Rather, they must act as an intermediary between the two parties.

Occasionally the seller must pay the commission even if the sale doesn't close. These circumstances are usually detailed in the listing agreement. Some situations include:

• The seller changes their mind and refuses to sell
• A defective title, such as if there is a tax lien on the property
• A spouse decides not to sign the deed
• The seller commits fraud or other illegal sales practices
• The seller refuses to move forward unless they can renegotiate the listing agreement terms

What is a typical salary?

If you Google this question, you'll likely stumble across Indeed's claim that real estate agents make around $95,000 per year. The average income, Indeed says, increases with an agent's experience: Indeed reports average incomes of about $85k and over $110k for new and experienced agents, respectively.

While salary does tend to increase with experience, Indeed's numbers are questionable, as the averages are calculated from voluntarily-submitted data points. One possible bias in the data is that agents who report their incomes may be more successful in the industry (an agent struggling to make a living is less likely to share how much they make). This bias could skew the average, resulting in an overestimation. On top of that, an agent's salary varies depending on his or her specialization.

The U.S. Bureau of Labor Statistics attempts to account for those biases, taking its data from surveys. It estimates that the mean income of real estate agents was $65,850 in 2022. It also reports higher salaries for specialized agents: an agent focused on residential building construction makes over $105,000 on average, while an agent in the field of oil and gas extraction makes an average salary of over $130,000.

Here’s the quintile salary breakdown from the U.S. Bureau of Labor Statistics:

Source: U.S. Bureau of Statistics, 2023

Let's also examine the figure released by the National Association of REALTORS® (NAR). In its Member Profile in 2022, NAR reported that the median income of their agents was $54,330. They also reported that REALTORS with 16 years of experience or more had a median gross income of $85,000.

Why so many different estimates?

Given the many variables that can affect an agent's salary — listing agreement terms, commission rate, number of sales, and specialization — the wide range of income estimates makes sense. It's hard to pinpoint an exact number, but the opportunities for success are boundless.

One takeaway of which we can be certain: the longer you're in the industry, the more you'll make. Every source reported higher incomes for more experienced agents.

The bottom line

As a real estate agent, your salary depends on you — the more effort you put into your business and the longer you stick with it, the more money you make. Sky's the limit.

If you live in Texas and an independent career with serious earning potential sounds appealing, consider enrolling with Champions School of Real Estate. We provide everything you need to get started and continued support throughout your career. We hope to see you soon.

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