How Do Realtors Get Paid?

If you are looking to buy, sell or rent a home, there is a chance you'll hire a realtor to help you through the process, and they are paid on commission.

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If you are looking to buy, sell or rent a home, there is a high chance that you will hire a realtor to help you through the process.

Hiring a realtor to help you with real estate transactions comes with numerous benefits. For instance, if you are buying a house, they will advise you on whether you are paying more than the market value.

On the other hand, if you are trying to sell a house, they will use their experience to market your house and ensure you get a fair deal. In short, their expertise and experience is priceless.

So, how do realtors get paid? Realtors or real estate agents usually work on commissions.

Read on to learn more about how the buying and selling of properties works, how realtors get paid, the commissions they earn, their potential earnings as well as how much realtors can earn.

Table of Contents

Getting Paid

So, how are realtors paid? Real estate agents are paid commissions for each property sold. And the commission is usually paid once the deal has been closed.

As much as the commission is usually 6% of the sale price, it can vary from one sale to the other. For instance, real estate trends for the last 20 years show that the average commission rate for realtors in the U.S is approximately 5%.

So, if a realtor manages to sell a home for $300,000, then their cut from the sale will be around $15,000 to $18,000.

However, it's important to note that this amount will not go to a single agent. As you may expect, both the buyer and the seller will use an agent, which means that the commission earned from the sale of the property will be split between the two agents.

So, each agent will walk away with a commission of 3%. So, if the realtors' commission from the house is $18,000, then the seller's agent and the buyer's agent will each walk away with $9,000 or thereof.

A commission of $9,000 from the sale of a home can appear like a lot of money. However, the entire process of finding a buyer or finding the right house, negotiating the price, drawing the contracts and finalizing the sale can drag on for several months.

And during this period, the realtor will be putting in long hours, answering hundreds of calls, showing up for viewings and attending to other activities related to the listing.

Therefore, if the process takes 6 months to complete, then the agents will have earned an average of $1,500 per month, which may not be equivalent to the services offered.

Besides that, realtors will also pay a certain amount of the money to their agency they work with. Eventually, they may end up taking home only 1% from the sale. So, while a property may earn a commission of $60,000, the agents may only take home a commission of $10,000 to $15,000.

In some situations, the realtor may operate under something known as "dual agency" where the realtor represents both the property buyer and the seller. However, such an arrangement may lead to a conflict of interest, and you don't want to find yourself in such a situation. But if you do, then you will take home the entire commission from the sale.

Who Pays Realtors' Commissions?

In most transactions, the realtor's commission will be paid by the seller, once the deal has been closed. The commission to be paid is usually deducted from the sale of the property. Therefore, if a house is sold for $300,000 and the commission to be paid is 5%, then the seller will take home $285,000.

Potential Earnings

So, how much money can you earn as a realtor? Well, a realtor's income is highly dependent on a wide range of factors.

Some of the factors that may determine the amount of money that you take home include the niche you are operating in, experience, hours worked per week, as well as the competitiveness of the market you are in.

  • Working hours: As you may expect, the more the hours worked, the higher the earnings. For instance, those realtors who put in an average of 40 hours per week take home an average $40,000 to $80,000 monthly. So, if you work part-time as a realtor, then will earn a lower income compared to someone who is working full-time. However, it's important to note that these figures are just estimates and may not apply to all situations.
  • Experience: Just like any other industry, the level of experience will also determine a realtor's earnings. The more experienced a realtor is, the higher the demand for their services, which translates to more earnings. Also, a highly experienced realtor will command a higher commission per sale compared to a beginner.
  • Niche: The real estate industry mainly falls under several niches such as residential properties, affordable housing, property management and commercial properties. On average, realtors who mainly operate in the commercial niche tend to earn more compared to those who operate in the other niches such as affordable housing.
  • Brokerage firm: Another factor that may determine a realtor's earnings is the agency they are working for. For instance, realtors who work for national franchises tend to take home more earnings compared to those operating at the local level. Also, self-employed realtors who've already made a name for themselves in the industry take home a bigger income than those working for brokerages.

Most realtors take home approximately $66,000 annually while the average income in other industries is around $53,000. On the surface, this may appear like a lot of money. And this may explain why thousands of people are joining this industry every year.

However, it's important to note that most realtors are usually self-employed independent contractors. Therefore, they don't have any work-related benefits that are offered to conventional employees.

Besides that, realtors also have to incur a wide range of expenses, making it extremely hard to survive in this industry. And this is partly why most realtors quit within the first year of joining the industry.

How Realtors Can Boost their Earnings

If you are a new realtor, taking home a sizable income is not always easy. In fact, the first few years may be so tough that you may even contemplate quitting. However, it's important to note that earning top wages in this industry doesn't happen overnight. It takes some time.

But you shouldn't quit, just because you are not earning as much money as you had expected. We've put together some handy tips and tricks, which can help to boost your earnings and establish yourself in the industry.

  1. Cast your net wider: If you are struggling to make ends meet as a realtor, then you should consider expanding your income sources. Some of the additional areas where you can offer your services include property inspections, appraisals, drafting contracts, market evaluations as well as providing BPOs. With these additional side businesses, your income will not only increase but you will also gain additional experience. Consequently, you will build more connections, which will in turn lead to more real estate leads.
  2. Enhance your experience: The top earning realtors are specialists in a wide range of fields. So, if you can widen your experience and become a specialist in different areas such as land development, real estate consultancy, relocation, or appraising, you can rest assured that your income will also increase.
  3. Get a degree: Most realtors usually hold a degree in another field such as sales or marketing. But according to studies conducted by the National Association of Realtors (NAR), top earning realtors usually have a Bachelor's degree in real estate. So, if you are a practicing realtor and don't have a degree in real estate, then it's time to consider getting one.
  4. Invest in your business continuously: If you are serious about increasing your real estate earnings over time, then you should be ready and willing to invest in your business. As much as you may be tempted to purchase a new car, move into a bigger house or go for a vacation, you should save these for later, once your business is solidly established. For instance, instead of buying a new car, you can use the money to revamp your website, boost your SEO campaigns or invest in digital marketing.

Additional Considerations

As a realtor, it's your duty to ensure that every detail of your fees and commissions has been agreed upon before you enter into any transaction. Also, everything should be formalized through a written and signed contract.

The contract should indicate the commission to be paid from the sale, who will pay the commission as well as when it should be paid. All parties participating in this transaction should also read and understand the contract. In short, it should eliminate any confusion that may arise after the transaction is complete.

Another thing that you should keep in mind is that commissions vary from one state to the other. Therefore, the commissions payable in Texas may be different from those payable in Oklahoma. So, ensure you conduct the applicable commissions and taxes before you enter any transaction.

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