Aspiring real estate agents and those considering a career in this field must grasp the fundamentals of real estate commission, as it will likely determine their income. While certain brokerages are transitioning to a salary-based model, most still operate on a commission-based system. Therefore, understanding the commission split is crucial.
Step 1: Negotiate Real Estate Commission Splits
When you join a brokerage, negotiating your commission split will be one of the initial steps. Typically, brokerages have a standard commission split for new agents. However, as you gain experience or reach specific production milestones, your commission split is likely to increase.
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In essence, the commission split functions as follows: Let's say you sell a $300,000 home, and the average agent commission in your area is 6%. This 6% commission is divided equally between the buying and selling agents (3% each). If you represent both the buyer and the seller, you keep the full 6%.
If you only represent the buyer, that 3% amounts to $9,000. However, you will need to share this with your broker. Assuming a 60/40 split, you would take home $5,400. It's important to note that, as an independent contractor, you are responsible for your own taxes. This figure is pre-tax and pre-expenses.
Step 2: Estimating the Earnings Potential Per House
Based on data collected for the National Association of REALTORS® 2020 Member Profile, the average REALTOR's yearly income is approximately $49,700. However, it's worth noting that REALTOR salaries slightly differ from other real estate agents. Let's explore some key statistics:
- REALTORS with 16 years of experience or more earned an average of nearly $86,500 per year.
- 27% of REALTORS earned more than $100,000 annually.
According to our 2020-2021 Real Estate Agent Income Guide survey, the majority of agents and brokers reported higher earnings in 2019 compared to the previous year.
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Step 3: Calculating Real Estate Commission Based on Sales
Since your real estate agent salary will depend on the number of sales you make, it's essential to research your target market. Determine how many homes are selling each month and the number of competing agents. Additionally, evaluate whether the market is large enough for you to achieve your financial goals.
For instance, if you plan to sell real estate in a small coastal community in North Carolina, consider factors such as the monthly sales volume, competition among agents, and average home prices. These variables will influence your real estate agent salary.
What other factors will affect your real estate income? Check our article: 7 Costs to Consider When Starting a Real Estate Career.
According to the Bureau of Labor Statistics, agents in large metropolitan areas tend to earn higher salaries due to the higher number of annual home sales and average home prices. Conversely, agents in small communities can thrive by specializing in high-end real estate sales.
Step 4: Enhancing Your Real Estate Commission Salary through Education
Expanding your knowledge through real estate education is one of the most effective ways to increase your earning potential. For example, obtaining a specialist designation in luxury home marketing or assisting military families with relocation can broaden your client base. For more information on boosting your real estate agent salary, refer to our article: 5 Ways New Real Estate Agents Can Boost Their Salaries.
Ready to start your real estate career? Download our free guide: Is a Real Estate Career Right for You?
