How Much Money Real Estate Agents Really Earn

Estimated reading time: 5 minutes

Note: The subject of how some agents get paid, specifically those who bring to, or represent the buyer in, a real estate transaction has been an area of debate and litigation. You can read about the judicial ruling here. As a result, the method by which a buyer agent is compensated may change in your area. If you are considering a purchase, please consult with your agent about his/her commission requirements and who will be responsible for the payment. While the percentages and whether or not a buyer agent is paid from the seller may change from what is stated in this article, it is intended to describe how the final commission to an agent is not the total amount they will receive.

While some people may think that real estate agents make excessive amounts of money and are well-to-do, both of these situations are exceptions rather than the norm. The average brokerage commission for selling a modest $300,000 home is around $18,000, so why does it cost so much to sell a home, and who gets what part of this commission? Once you understand how commissions are divvied up, what expenses are paid by both broker and agent, and how much agents actually receive, you may be surprised at how little an agent really earns on the average sale.

The first thing to know is that real estate agents are not paid a salary. As independent sales contractors, agents only receive a commission and only when a property closes, so there are no guarantees of getting paid on a regular basis. Agents pay almost all of their own business expenses, including the expenses associated with marketing a listed property, including:

  • Online advertising
  • Professional Photography
  • Virtual Home Tour
  • “Open House” & “Just Listed” Flyers
  • Drone Footage
  • Open House Materials

When a property transaction closes, the brokerage commission is paid from the proceeds at closing, usually by the seller. This fee is divided between the real estate broker representing the seller and the broker representing the buyer, with each broker usually, but not always, receiving an approximately 50% share of the total gross commission (percentages vary by location). The listing agent and the buyer’s agent each then receive a percentage of their respective broker’s portion. That means the total brokerage commission is commonly divided among four entities, with the agent receiving just one portion to pay all of his or her expenses. The graphic below illustrates how the commission is split among the four different individuals.

As you can see, a listing agent may receive about $6,750 in commissions. After paying expenses to market the property along with pro-rated ongoing expenses, including:

  • professional dues (e.g., MLS membership dues)
  • automobile gas and maintenance
  • yard signs, business cards
  • technology fees

The agent may end up with a net income averaging 1%-1.5% of the total sale, or $3,000-$4,500. This site lists the national average incomes for real estate agents by state, with a median national income of $48,930. Keep in mind this is only one example. Commissions paid by the seller, splits between the two brokers, and splits between the brokers and their respective agents may vary from what is shown below, but these figures represent the most common percentages and don’t include a possible additional fee for getting the business in the first place. If either the seller or the buyer was referred to the listing or buying agent, there will also be a referral fee that gets paid, but it is not included in the example above.

As previously noted, a referral fee may also be paid between real estate brokers and their agents. A referral fee is another type of real estate income and is earned when an agent refers a buyer or seller to another agent, typically outside their territory. A referral fee is often 25-35% of the Selling broker or Buyer broker split. In the example above, an agent who referred a buyer to the Buyer Agency might earn 30% of the $9000 commission, or $3,000, without being involved in the sale. The remaining $6,000 would then be split between the Buyer Agent ($4,500) and the Buyer Broker ($1,500). While referrals represent a smaller percentage of an agent’s overall transaction volume, they are still a great way to help a well-connected agent earn more of an income while not actually participating in the transaction details themselves or costing either the buyer or the seller any additional money.

When I learn of someone who is interested in buying or selling a property that is outside of my market area or is not my usual type of real estate transaction, I will gladly refer them to a knowledgeable and experienced REALTOR® who can best serve their needs. When a successful transaction occurs, the referred REALTOR® will pay my company a referral fee for sending them the buyer or seller, and I will get a portion of that for my research and interview process with other agents. I can make a referral regardless of where in the country a buyer or seller may currently reside or wish to move to.

So when you hear of a family or friend who wants to sell or buy a home anywhere in the country, please let me find them the right agent to work with them. I would sincerely appreciate the additional business and a vote of confidence.