Many people get a real estate license because of the potential income in the real estate industry. How are real estate agents paid for their work? Here’s how real estate agents are paid.
How real estate agents are paid
Most real estate agents are paid commissions based on the sale price of a property. Real estate commissions can be negotiable. They range from 1% to 10%. We will use the 5% commission rate as an example for our purposes. For a property worth $250,000, the $12,500 5% commission will be paid at closing. This does not mean the agent will walk away with $12,500. A predetermined percentage of the commission will be paid to the broker of record.
The commission split
The commission split is the most common payment arrangement between a broker or agent. This the number can also be different depending on if the the property being sold is residential or commercial real estate. The percentage of commission paid to the broker is determined by the terms under which the agent was granted the license. If the traditional 50/50 split is used, each agent will be paid a $6,250 commission at the closing of escrow for the one property.
The promise of success is immense for a real estate agent who has a loyal client base.
If the above example is used and assumes that only one property is sold per month, a real agent can expect to make $75,000 annually. The potential income for a real estate agent who is committed and well-informed about the market where he or she works is much higher than commissions from a single closing per month. This is a significant increase in your income when you consider commissions this large. Your annual income could increase by as little as two closings per calendar month.
How real estate brokers make their money
The commissions are even more straightforward for you as a real estate broker. You will receive your share of the commission split if you hold the real property license for all agents. If five agents work out of your office, and each agent closes one deal per month then you will make $31,250 per month as their broker.
Becoming a real estate agent or broker
There is tremendous potential to generate income, regardless of whether you are an agent and/or broker. Your willingness to work hard is the only limit.
Agents with extensive knowledge and experience in the real estate market can make a huge income. An agent who wished to become a broker needs to decide whether they will open their own brokerage or become a franchise of a larger brand. It is important then to know how to buy a real estate franchise. A network of knowledgeable and experienced agents can make you a successful broker.
Working with real estate investors
One way that many agents and brokers have found success is to work with real estate investors. Commercial investors, in particular, can bring in tens of thousands of dollars (or more) each year. That’s because they tend to deal with larger properties that cost many times the price of an average home. Plus, with these types of investments, there is usually more volume. That’s because these investors aren’t just buying a home to live in. They are buying properties to make a living. This makes them great partners for a real estate agent, who knows the commercial real estate market.
Regardless of which route an agent chooses, there are many ways to earn a good living while practicing real estate.