What Do Agents Earn?
You love your clients, you enjoy connecting buyers and sellers, and we know there’s nothing better than handing off that perfect piece of property into the hands of the right customer! While it’s certainly not all about the money, it sure helps when your income is high, healthy and on par with colleagues and competitors.
In order to ensure you’re on track with your earnings, it’s important to know what other agents are grossing and how brokers handle commission, salary and businesses expenses. Nobody likes to talk about paychecks – except maybe billionaire playboys and hotheaded venture capitalists – but the taboo we place on sharing earnings information isn’t doing anyone any favors.
We know that to manage and capitalize on your earnings expectations and ambitions, you need to know how you fit into the larger picture. That’s why we’ve compiled this starter guide. We’ve done some of the groundwork for you – consulting studies and reaching out to our own Point2 Agents – to present this guide to compensation, commission and salary for real estate professionals.
The average agent in North America earns a base income of just over $38,000 per year, earned via a basic commission rate of 5-6% of the total property sales price. Recent numbers from the National Association of REALTORS® (NAR) indicate a wide income gap between brokers and sales agents, with brokers bringing in $65,300 in 2014 and agents earning just under $34,000.
Based on information gathered during a 2011 poll of NAR members, the typical real estate agent works on a commission split that varies widely based on how many years of experience that agent has in the businesses. New agents tend to work with a 51-55% commission split while those agents with 16 years or more of experience fall into a 70-75% commission split range. And don’t forget those extra business expenses, including office overhead, health insurance, transportation, marketing, technology, continuing education and industry dues.
Compensation Models and Fees
Real estate agents can earn income in the following ways:
- Standard Commission Split: Broker and agent split gross commission based on agreed upon percentage
- 100% Commission: Agent keeps 100% of commission but makes a monthly payment to the broker as a “desk fee”
- Referral Commission: An agent can earn a percentage of the gross commission from a sale when they refer a buyer to another brokerage or agent
- Commission Cap: An agent pays a standard split on commission until a limit (or “cap”) is reached on what the broker gets, at which point they earn 100% on commission for the rest of the year
- Salary: An agent is paid a set salary per year by the brokerage, sometimes with a small commission bonus added
In addition to split commissions and desk fees, an agent may also be required to pay a percentage fee “off the top” to the brokerage for each commission earned. Major franchises will often take a 7% franchise fee from the gross commission before any other splits or payments are deducted. If an agent has received a $10,000 commission, for example, $700 would be paid to the franchise before the rest is distributed to the agent and brokerage.
There are also plenty of nontraditional brokerage/agent models out there, including fixed-fee systems. Additionally, while an agent may avoid paying brokerage or franchise fees, that agent will still be responsible for additional business costs. Those costs can include office expenses, marketing, training and other services typically provided by the brokerage or franchise.
Working for a Broker
Real estate agents working for a broker are compensated via a split in the gross commission, with the broker receiving a set percentage of the final commission paid. For example, if the gross commission of a transaction is $25,000, in a 50/50% split both the broker and the agent would earn $12,500, with different percentages yielding different payouts. The rate the broker receives on any sale is predetermined and based on the services the broker provides to the agent, as well as how much business the agent brings to the broker. If the broker and the agent have agreed a 100% commission split, the agent will pay a monthly office fee to the brokerage while keeping the entire commission amount themselves.
In a broker-dominated business model, the broker is in charge of all aspects of the company and assumes much of the risk and initial outlay of capital. Depending on whether the office is “broker-centric” or “agent-centric,” the broker provides the majority of leads to agents or agents are left to develop their own prospects. In a broker-centric model, the broker usually manages how those leads are handed out to agents, while an agent-centric setup makes agents themselves responsible for lead generation and follow up.
Sometimes the broker provides office space for agents, along with all the equipment and staffing required to run the business smoothly and efficiently. Essentially, the broker is the boss; distributing assignments and earning income based on a percentage of each agent’s commission while the agents keep some control over their destiny. Other business models also exist, including profit-sharing and agent-participant structures, and some real estate offices include vendor-related additions like lending, title and escrow services.
Some controversy exists as to which office system – broker-centric or agent-centric – offers the best opportunity for real estate agents. Experienced agents with a track record of closing transactions and a steady and robust lead generation strategy will most likely do well in an agent-centric office. For new agents, the lack of mentorship and guided direction could leave them floundering if they haven’t developed the skills to succeed. For those just starting out, the guidance and nurturing of a broker-centric office may be a better fit. For a 100% commission split, new agents may struggle to pay the monthly fee, especially during periods where they have failed to complete any sales transactions. Ultimately, the commission split and estimated earnings must always be considered when making your decision. Equally important are intangibles without fixed monetary value, like extended training, excellent support staff and a proven marketing framework.
According to REALTOR® Magazine, only about 5% of real estate agents work as salaried employees. This small percentage is due, in part, to the limit a salary places on the amount an agent can earn in a good sales year. Of course, during years when sales may not be abundant, salaried agents can feel secure in the knowledge that their pay will remain steady.
For brokerages, the value of keeping a stable of salaried agents is contingent upon their ability to exert more control over agent activities and nurture inexperienced salespeople who may need some extra help starting out. Salaried agents are also less likely to jump ship during slow sales periods, thus reducing turnover and the additional expense associated with hiring and training new employees.
For agents, the security of salary comes with a trade-off: salaried agents cannot earn more money during boom times. In a salary model, everyone is paid at similar rates regardless of the individual effort expended by each agent towards generating leads and closing deals.
The Bottom Line
Whether you’re on a commission split, a commission cap, or some salary agreement, in the end how much you earn as an agent depends almost entirely on the effort and discipline you apply to your business. Continued training and networking will provide you with the tools you need to continue advancing in your profession, and you should never be afraid to try new ways to learn and grow as an agent.
Keeping up to date on the latest marketing strategies and technologies will give you a head start and propel you into success and satisfaction. In this modern real estate marketplace, it’s essential that you have access to a killer website and up-to-date marketing knowhow like those available through the Point2 Agent software suite. Consult with your colleagues, grab a mentor and make the most of all the tools and marketing tactics available to make sure you are earning what you deserve.
Sidebar: Compensation Tips for Brokers
When running your brokerage, it’s always important to make sure you are managing compensation for your staff in a way that motivates and mentors them. REALTOR® Magazine provides some great tips to follow, including:
- Don’t pay your managers so poorly that they have to sell. A manager’s role is motivating and mentoring the sales staff, putting them in competition with each other is a lose-lose situation.
- Do pay managers a bonus or percentage of commission to provide incentives for increasing productivity.
- Do link incentives to more than just sales volumes; set bonuses based on the overall profitability of the brokerage so that managers will not neglect the important job of controlling expenses.
- Do be sure that your salary and benefits—health, pension, etc.—are on par with your competitors.
- Don’t pay all managers equally, pay them based on the difficulty of their managerial role. A manager charged with opening a new office requires a different compensation structure from one operating an established one.
Interested in reading more about compensation and agent commissions? Let us know what topics you would like to know more about!