How Much Money Real Estate Agents Really Earn

Estimated reading time: 5 minutes
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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 has most likely changed in your area, especially if you are purchasing a property. 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 lots of money and are well-to-do, both of these situations are exceptions rather than the norm. The average brokerage commission for an agent selling a home is around 3%, but not all of that goes to the agent. 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 receive only commissions and only when a property closes, so there are no guarantees of getting paid on a regular basis. Except in rare situations, individual agents pay almost all of their own 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

For agents representing buyers in the purchase of a property, there are also expenses, the largest ones being related to their automobiles in their daily work. When it comes to the property purchase, how some buyer’s agents get paid has been an area of recent (August, 2024) change. As a result, how a buyer may work with an agent to find a property has changed, and a commission may be due to the agent representing the buyer if not negotiated elsewhere. If you are considering a purchase, please consult with your agent about his/her commission requirements and who will be responsible to pay the buyer’s agent commission. For more information about these changes, read this article by CNN.

In either case, whether you are working with an agent to sell or to buy a property, all commissions are negotiable. For the purposes of this article, we will use 3% as the commission a seller pays to have their property sold and a 3% commission also to the brokerage that represents a buyer regardless of who pays that commission.

When a property transaction closes, the brokerage commission is paid from the proceeds at closing. The commissions are negotiated in advance between the listing/selling agency and the seller, and also between the agency representing the buyer and whoever has agreed to pay the buyer’s agent commission. In some cases, the seller may offer to pay part of the closing costs, provide concessions on items that need to be repaired or upgraded in the home, pay a portion of the buyer’s mortgage points, or offer to pay some or all of the buyer’s agent commission. The listing agent and the buyer’s agent each then receive a percentage of their respective brokerage’s portion. The graphic below illustrates how the commission might be split among the four different entities.

HOW DO REAL ESTATE AGENTS RECEIVE THEIR COMMISSION?

(Example: $300,000 home sale price, seller agreeing to pay listing brokerage 3% to sell, buyer agreeing to pay buying brokerage 3%, and 75/25% splits between agents and their brokerages.)

As you can see in this example, a listing agent and a buyer agent each may receive about $6,750 in commissions. Keep in mind this is only one example, and this site lists the national average incomes for real estate agents by state, with a median national income of $48,930.

INCOME FROM REFERRING BUYERS AND SELLERS TO OTHER AGENTS
Sometimes a referral fee may also be paid between real estate brokers and their agents. A referral fee is another type of real estate income earned when an agent refers a buyer or seller to another agent, typically outside their licensed area or expertise. A referral fee of 25-35% of what the Seller’s agency or Buyer’s agency receives is typical. In the example above, another agent who referred the seller to the Listing Agent might earn 30% of the $9000 commission, or $2,700, without being directly involved in the sale. The remaining $6,300 would then be split between the Selling Brokerage ($1,575) and the Selling Agent ($4,725).

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 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. If or when you hear of a family or friend who wants to sell or buy a home anywhere in the country, please let them know I can find the right agent for them to work with, regardless of the geographic distance. And I would sincerely appreciate the additional business and a vote of confidence!