Real estate agents are an integral part of the real estate transaction process. They are so important, in fact, that most buyers will not buy a property without a real estate agent or broker. As a testament to this, according to the National Association of Realtors, 88% of buyers purchased their property with the help of a broker or an agent.
Related: What to Expect When You Don’t Use a Real Estate Agent
If real estate agents are that important, that begs the question: How much do real estate agents make? Unlike a real estate investor or a landlord, who receives monthly rental income from an investment property, a real estate agent makes money in irregular intervals. To elaborate on that and continue to answer the question ‘How much do real estate agents make?’, we first need to talk about what real estate agents actually do.
What Do Real Estate Agents Do?
Before we answer the question how much do real estate agents make, let’s start with the basics. What exactly do real estate agents do? In essence, a real estate agent is a salesperson who represents a party of a real estate transaction. Real estate agents typically work under brokers whom are assigned with, and both are licensed from the state. Since there are two parties to consider, there are two main types of real estate agents to discuss.
A seller’s real estate agent will help the seller capitalize as much as possible on the property sale. They do this by suggesting appropriate improvements to the real estate property, all while advertising the property for sale. A buyer’s real estate agent, on the other hand, will help a buyer find a property for sale that best suits him/her while finding the best (cheapest) deal out there.
As you can see, the purposes of a seller’s and a buyer’s agent come in conflict with each other. Regardless, using an agent will save a buyer or a seller with a lot of time and energy. For sellers, a real estate agent will set the appropriate property price, deal with legal issues, and set the deal. For buyers, an agent is used to find the perfect real estate property depending on the buyer’s goals and budget.
Since agents work with income property transactions, they are bound to get paid from them, right? This leads us to the next point.
What Are Real Estate Agent Commissions?
Real estate agents are paid through commissions. To understand commissions, we need to back track a bit. During every real estate transaction, the seller and the listing broker agree on a contract which outlines the property’s condition. This is what is called a listing agreement. This listing agreement specifies how much the real estate broker will get paid. This amount must always be based off negotiations. It is illegal for this amount to be a set price.
From there, a commission is split among the agents of a broker. The percentages of the commission vary, especially based on experience. For instance, a novice real estate agent may receive 40-50% of a commission, while an experienced partner agent may receive the rest of the commission.
Commissions are paid to real estate agents when a transaction is made. In rare cases, however, a commission may be paid even without the occurrence of the transaction. Such instances include when a seller commits fraud in any way regarding the transaction.
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How Much Do Real Estate Agents Make?
Finally, this leads us to the answer to the million-dollar question: How much do real estate agents make? Figures vary but according to Salary.com, the answer is about $45,000.
Some agents only work part-time, depending on their goals or simply on the transaction process. Others opt for being an agent full-time, which obviously increases their overall pay.
There are many factors that lead to a real estate agent’s salary, as to be mentioned soon. One is experience, as mentioned previously. For instance, if a real estate property’s listing price is $350,000, and the commission is set at 7%, the broker will receive $24,500. Then, the broker will split the percentage among the agents. Say an agent receives 40% of the split. That agent would receive $9,800 on that transaction.
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Other Factors Influencing Real Estate Agent Salary
What other factors impact the answer to how much do real estate agents make?
If you guessed location, you’ve guessed correctly! Location plays a role in everything in the real estate business. For starters, location affects commission rates. Some areas have higher or lower commission rates. The local job market also plays a role. When employment is high and new jobs are being created, the housing market improves, and home prices rise, leading to a higher salary for real estate agents. Be aware of how location impacts how much do real estate agents make if you are considering to become a real estate agent.
Related: Location, Location, Location – Is Location Really All in Real Estate Investing?
How agents network significantly impacts how much do real estate agents make. Being able to facilitate the transaction process with appropriate help could lead to higher pay through negotiations. Real estate is all about networking, don’t forget that.
Related: Creating a Real Estate Investment Network: Who Do You Need?
To Sum It All Up
Real estate agents break down into two kinds: buyer’s agents and seller’s agents. Each type of real estate agent represents his/her respective party and aims to maximize his/her party’s profit in a real estate transaction. Real estate agents tend not to work independently; instead, they are assigned with brokers. Both real estate brokers and agents are licensed by the state.
To come to an agreement over a rental property, the parties must negotiate. Part of the negotiating process includes agreeing on the amount a broker gets paid. A percentage of this amount is how much the real estate agent receives in pay. Factors including the market, experience, and networking all impact how much do real estate agents make.
For more answers to questions in real estate similar to how much do real estate agents make, check out the Mashvisor blog. For more information on how to become a real estate agent and valuable information for real estate agents, visit Mashvisor. And of course, to begin searching for rental properties, start your trial with Mashvisor right now!