OfflineMany people want to become real estate agents because of the freedom and possible income you can make. If you do a quick search on Google for the average income of a Realtor it can be quite shocking, because the figure is so low; $39,000. Do not be scared off by that number! There are many reasons the average income for real estate agents is so low. I make well more than the average income for a Realtor, in fact I am in the top 1.5% of income earners in the US. Not only does being a real estate agent provide great income, it saved me over $70,000 on investment properties I personally bought and sold in 2013.
If you want to make big money as an agent you have to work hard and work full-time. The money won’t just fall in your lap after you get your real estate license. You need a plan, goals and you need to be able to run your business. Why is the average income so low for real estate agents?
What is the average income for a real estate agent?
If you look up the median income of a real estate agent you may be surprised how low it is. Many people hear how much money agents make, but the median income is only $39,000 a year. There are almost 1 million agents in the United States and income statistics can be very misleading, because there are many part-time agents. I could not find any data for how many of the 1 million agents are part-time agents, but those part-time agents really bring that median income down. Not only do part-time agents bring that income down, but many agents don’t work very hard; they think being a Realtor is a free ride and easy money. I hear stories over and over from buyers who have to call five agents before one will call them back. I recently tried to refer out a buyer to an agent in Florida and I had to contact five agents before one responded! If you work hard and full-time you can make a lot of money in real estate and blow that median income figure out of the water.
How much money does a traditional buyer’s agent make?
A buyer’s agent sells houses to buyers and earns commissions on each house they sell. There is no set or typical commission, but I will use a 3 percent commission as an example. The buyer’s agent may not get to keep all of their commission, because they must pay a split to their broker in most cases. We will assume the split is 70% to the agent and 30% to the broker. I think if an agent works hard and full-time they can easily sell 20 houses a year. In my market the average price is $175,000 allowing a real estate agent to earn over $70,000 ($175,000 x 20 houses x .03 commission x .7 split to the broker equals $73,500). The real estate agent will have expenses to pay like an office bill, MLS fees, insurance and other miscellaneous items. Those fees will vary depending on the real estate agent’s agreement with their broker, but the total expenses should be under $5,000 a year depending on the office set up.
If you sell more than 20 houses (which is very possible) the yearly income can rise significantly. The more houses you sell, the smaller broker split you will usually have to pay as well. Even if you sell less than 20 houses a year you can make a decent living as a real estate agent, especially if your market has higher prices. A buyer’s agent may also sell listings for sellers who they are helping to buy a home. A buyer’s agent is not limited to only selling homes to buyers.
How much money can a listing agent make?
A seller’s agent or as they are typically called a listing agent, has a completely different role in the sales process. A listing agent will make about the same commission, but go about it in a completely different manner. I won’t go into details for the income that can be made, because you can use the same math I used for the buyer’s agent. The biggest difference will be a seller’s agent can typically sell more houses than a buyer’s agent, because it takes less time to list a house than it does to show homes to buyers. A listing agent can also sell houses to buyers and may double end many deals. Double end means they represent the buyer and seller in a transaction. Because they have the listing, a buyer may use the listing agent to buy the house if they aren’t already using a buyer’s agent. Listing many houses also brings in buyer leads, which we will get into more when I talk about teams.
How much money can a REO agent make?
This my specialty and you can make great money as a REO agent, but it isn’t easy. I detail what an REO agent does in this article on how to list REO properties. If you are an established REO agent you can sell many houses a year. I have sold over 400 REO listings in the last three years. The commissions vary with REO listings as I receive 3 percent on some and as low as 1 percent on others listings. I assume the average commission I receive is about a 2.5 percent on each REO I sell. When I sell REOs they typically sell for less than the average sales price in an area. If I assume the average price is $120,000, multiply that by 100 houses, times 2.5% commissions and assume a 90% commission split, that equals $270,000.
The expenses are much higher for the REO agent than they are for a typical listing agent. To be successful in REO you have to belong to REO organizations, register with REO companies, carry more insurance, and pay expenses for the banks on REO properties. Many times you will have to eat some expenses and pay fees to pay the banks bills for them (not logical, but that is the deal). The REO agent also needs to attend conferences to meet clients and gain business; I attend at least two conferences a year. I would assume the expenses to be at least $20,000 or more a year for most successful REO agents.
If you sell 100 houses a year it is going to be virtually impossible to handle everything yourself. Most likely you will need at least one full-time assistant who will cost approximately $30,000 a year. After expenses and staff, a REO agent selling 100 homes a year may profit $220,000 a year just on the REO listings. The great thing about listing a lot of properties, is listings bring in buyer leads. A good REO agent should be able to sell as mnay houses to buyers as they do listings. Having that many listings is also a great opportunity to start a team and let other agents sell properties for you without doing any work. To learn how to get started in REO, please check out my REO starter kit.
How much money can a real estate agent make by building a team?
When you start selling homes and getting busy, it is time to start a team. I don’t think you can hire people soon enough if you want to be successful. The more people you hire, the more money you can make while doing less work; it is a beautiful thing!
I have 8 people on my team including five licensed real estate agents. They don’t all sell a lot of homes, but I get a cut of each house they sell. I provide incentive for them to be on my team by giving them leads, paying some of their expenses and providing staff to help them with paperwork.
I have my team set up so that agent’s under me can sell houses easily, which allows me to receive a check for doing very little to no work. If you have a lot of listings it is much easier to start a team, because you get many buyer leads with listings.
If I were to have three agents on my team activity selling houses then I can make great money from them. A typical setup would be the agents get a 70% commission split of their own clients and 50% of the leads I give them. If they are all able to sell 25 houses a year, which should be very possible with many buyer leads coming in from 100 listings, here is how much they would bring in.
Average house price $175,000
Average commission 3%
My cut from our broker is actually 100%, but I will use 90% because that is more common
75 houses sold; 50% my leads and 50% their own clients
For my leads that math breaks down to:
$175,000 average sale x 37.5 (half of 75 houses sold) x 3% commission x 90% split with broker x 50% split with me =$88,600.
For their own leads the math is:
$175,000 x 37.5 x 3% x 90% x 30% =$53,150
I will have expenses that may add up to $15,000 a year for these agents, but I just made over $140,000 gross profits and over $120,000 net profit. The agents working for me each made about $65,000 a year and they had to pay very little of their own expenses. It works out great for everyone as I make money for doing very little work and the agents get leads and their expenses paid.
How much money can you make in other real estate ventures?
There are many other ways to make money as a Realtor and I talk about the top 9 ways to make money as a real estate agent in this article.
Broker Price Opinions (BPOs) are reports done to determine value. I (my staff) do about 1000 BPOS a year and get paid an average of $50 a BPO. That is about $50,000 a year, but I have to pay for someone to take pictures and do the reports. I probably profit about $20,000 a year on BPOs without doing any of the work, but you can make much more if you take the pictures and do the reports yourself.
Property management can also bring in good money with enough volume. A typical fee for a property manager is 10% of the gross rents and leasing fees. With 100 homes rented at $1,000 a month that would equal $10,000 a month, but you may need staff to handle that many rentals. If you add a one months rent leasing fee to that each time a home is rented that figure can rise significantly. Property managers may also use their own maintenance people and take a profit on each repair done, but this must be disclosed.
How much money will you save as a real estate agent when you invest in real estate?
I buy long-term rentals and fix and flips; I usually save a lot of money on commissions for each deal I do. I have 8 long-term rental properties and currently have 6 fix and flips in various stages of repairs. I talk much more about my real estate investing in my complete guide to long-term investing here. On each flip I buy through the MLS I save a commission when I buy the home and when I sell it. This can equal $5,000 to $15,000 I save on every deal! I also save a commissions on each rental property I buy, which decreases my investment and increases my returns. I estimate being an agent saved me at least $70,000 in 2013 alone on my own investment properties.
I am also able to get better deals on my investment properties that I buy, because I know my market extremely well. I am also able to act extremely fast when a good deal comes along; much quicker than an investor without a license. I am also able to pay more for a property than an investor without their license, because I am saving my commission. The $70,000 I saved on commissions does not include the profit I made on deals that I would not have gotten if I was not an agent.
Conclusion
If you want to become a real estate agent, don’t pay attention to the average or median income statistics you see. I personally have money coming in from my team, REO listings, BPOs, my rental properties, fix and flips and the few buyers and sellers I work with personally. It takes time to get to where I am at, but it can be done with hard work and planning. If you would like more information on how to succeed in the real estate business, please check out my book How to Make it Big in Real Estate. I give a great description of the book here that describes what is included in the book and how it can help anyone interested in becoming an agent or is an agent become more successful. tferguson
I had guessed that the average realtor's income is not so high and that it flutuates from year to year. One does have to work hard especially in a down economy. I have had the experience that you call realtors and they don't call you back. Never knew the reason; eye opening really!
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I got my license for many of the reasons listed above. Mostly to get quick access to REO's and short sales. Commissions are pretty good as well.
I recently looked up the numbers in my state.
If you look at the number of agents and the number of sales in the last year, the average number of sales, per agent, last year, is slightly above 3. The average gross commission is about $5600. That means, in my state, the average agent made less than $17,000 in gross commissions.
Of course, as with anything else 10% of the agents do 90% of the business and as a result make 90% of the money.
The brokerage I work out of has a few agents that made close to $500,000 last year. That's good money by any standard.
When you add the additional profit centers Randy mentioned above, you can have a pretty good life.
My girlfriend is thinking about becoming a real estate agent and I just emailed her this post so she can get a feel on what they make. She is going to find this post very interesting.
Reynold Orozco