Working as a real estate agent might be something that suits your lifestyle. You can pretty much set your own hours and, if you are good at the job, you can earn a lot of money. In fact, according to Indeed, real estate agents earn an average of $84,459 per year. When compared to the average salary in the U.S. ($54,132), real estate agents do quite well. But before you rush out to become a licensed real estate agent, you should be aware that the amount an estate agent earns is usually based on commission.
How Does Real Estate Commission Work?
We asked the DeRidder´s real estate agents at EXIT Real Estate Consultants how commission works, and they told us that most agents do not receive a salary per se. What they do get is a percentage of the selling price of a home: but only once the transaction is complete.
Real estate agents do not get paid by the hour, and if a house sale falls through or if another agent manages to close the sale, no commission is paid. The idea of working in this way might sound less attractive right now but when a sale does go through, the agent can make quite a bit of money.
In the case of a residential sale, the seller will usually pay between five and six percent of the sale price. This commission is split between the broker and the agents working for both the seller and the buyer (the seller usually pays the buyer’s agent fees too). The amount that each agent gets will depend on the contract they have with the broker that they work for. The split between broker and agent might be 60:40 or 70:30, with the agent getting the higher amount. Sometimes it will be an even 50:50 split.
Pros and Cons of Being Paid Commission
There are pros and cons of working in this way. The most obvious benefit is the fact that there is no cap on the amount that you can earn. If you are paid by commission and you sell a record number of homes in a year, your salary could be much higher than the average.
Real estate agents who want to earn more money know that by working harder and putting in extra effort to get a house sold, they can increase their income.
The downside of working on commission is that there is very little security, and when the market is slow then your income will likely be down too. Not having a steady income can affect your ability to pay your bills from time to time, and you might be seen as a risky investment in banking terms. If you do manage to secure a loan from a bank, you are likely to have to pay higher interest rates.
Another drawback is the fact that you may end up working for no reward. For example, you could put in many hours staging a home and hosting showings but with no success. Sometimes the seller is demanding too high a price and is refusing to accept what you might consider to be realistic offers. This could mean the property will not get sold no matter how much work you put in.
Real estate agents generally earn more than the average U.S. salary. However, because their income is commission based, it can fluctuate quite a bit. When there is a housing market boom, commissions can be very high, but when the market is slow, agents can go for months without making a sale – and that means no income.