Content of the material
- Real estate agent salaries
- Other Pay Models
- How Much Do Real Estate Agents Make if the House Doesnt Sell?
- Dual Agency
- Why a real estate agent is worth the commission
- How Much Do Real Estate Agents Make at Closing?
- What is the Average Real Estate Agent Commission in California?
- Why do realtors get 6% commission?
- How can I find agents who charge lower commission rates?
- How and When Does the Money Change Hands?
- How much do real estate agents make on commission?
- What do these fees cover?
- Do California Real Estate Agents Pay Their Own Taxes?
Real estate agent salaries
Real estate agent salaries aren’t based on a yearly or hourly wage. Instead, most agents make money only after a home has sold.
This income is in the form of a commission, which equates to a percentage of the home’s selling price. So a real estate agent’s salary depends on the sales price of homes where they work.
That’s a lot. Zillow reports the median sale price of a U.S. home was just over $287,000 in May of 2021.
A 6% commission on a home selling at $287,000 would equal $17,220. Even after a 50/50 commission split, an agent could earn $8,610 on the home sale.
And, at the high end of the market, the figures must bring tears even to rich people’s eyes. A homeowner who sold a mansion in Manhattan or Beverly Hills worth $50 million would be writing (through those tears) $2.5 million or $3 million commission checks.
But before you decide to launch your new career as an agent, remember that not every real estate professional works in New York or California, and not every real estate transaction includes seven figures.
Other Pay Models
Although it is common for agents to be paid a percentage of the commission, there are cases in which real estate agents who are employed by a broker are paid a salary. Redfin—an online property search site that employs a staff of full-service real estate agents who are paid a salary plus bonus based on customer satisfaction ratings the company collects—is one example.
How Much Do Real Estate Agents Make if the House Doesnt Sell?
If the house doesn’t sell, the realtor isn’t usually paid. This can depend on your contract between the real estate agent and their contract with their broker.
In most cases, the seller would only need to pay cancellation fees for the listing. On the other hand, you may need to pay the brokerage a commission.
Agents on both sides of a deal have a fiduciary responsibility to their clients. This means agents must disclose known issues about a property and negotiate in good faith. As such, a buyer’s agent must act in the best interests of their customers just as a seller’s agent must represent the best interests of their clients. There may be a time when a listing agent also represents a buyer (for the same property), and this is known as dual agency.
Because dual agency makes it difficult to negotiate and represent both parties of a real estate deal, several states prohibit the practice. The State of California allows dual agency, but only if the agent or broker fully discloses it to the buyer and seller. To say the least, this becomes a precarious situation.
Why a real estate agent is worth the commission
Having a real estate agent on your side as a buyer can make home shopping less stressful — and you may find better properties, or get a better deal, than you would have on your own.
For sellers, it’s a better way to list your home and bring in more prospective buyers.
And for both sellers and buyers, it helps to have a professional on your side who can help navigate the complexities of such a big real estate transaction.
Also, “buyer’s agents work much harder for their money,” says Buttner. “They often work with a particular buyer for months. They show them multiple houses and make many offers before something sticks.”
For this reason, the buyer’s agent sometimes makes a bit more than the seller’s agent.
“A lot of brokerages that charge less than 6% will still offer the buyer’s agent a full 3%,” Buttner says.
Remember that an agent’s hard work is not rewarded with every client. Those national average salary statistics collected by the BLS and other sources don’t show this unpaid effort.
“Not all transactions result in them getting a commission,” says Ailion. “So the costs associated with transactions that don’t close must be factored into those that do.”
Ailion understands that 6% may seem high. But, he adds, you really get what you pay for.
“Like a good doctor or lawyer, I believe a good agent is worth their fee,” Ailion says. “You’re dealing with likely the most significant asset in your life. So choosing the best representation makes sense.”
How Much Do Real Estate Agents Make at Closing?
Essentially, yes.The agent receives payment from their agency after the sale has been closed and the property has been purchased.
Because agents get paid mostly by the commission, they can only access their funds after the buyer has finalized the purchase. This is done to ensure that the agent will hard work for you to close the deal on the purchase.
What is the Average Real Estate Agent Commission in California?
The average California real estate agent commission rate is between 5-6%. However, commission on higher-priced home and property sales average 4-5% percent. The seller and agent usually negotiate the commission amount before entering into a listing contract.
The average salary of a California real estate agent is $99,575. However, there is a wide gap in the salary range, with the lowest earners making $24,970 and the highest earners topping out at $123,700 per year.
Why do realtors get 6% commission?
Traditionally, you'll pay 6% commission in exchange for your listing agent selling your home and the buyer's agent securing a buyer. The full commission is split between the listing agent, the buyer's agent, and both agents' brokers. However, commission rates vary regionally and by agent.Learn more about average commission costs near you.
How can I find agents who charge lower commission rates?
Today, a growing number of real estate companies can help home sellers save on commission. Instead of paying the typical 6% commission, you can pay as little as 4% commission to sell your home. On a $350,000 home, this could save you up to $7,000 in realtor fees! Ready to save? Find the best low commission real estate brokers near you!
How and When Does the Money Change Hands?
Real estate commissions are paid like this:
- The seller pays the listing brokerage.
- The listing brokerage pays the listing agent.
- The listing brokerage pays the buyer's brokerage.
- The buyer's brokerage pays the buyer's agent.
The seller effectively pays your buyer's agent to negotiate on your behalf.
There are circumstances under which a buyer might pay a brokerage directly, such as when there’s no commission offered because the property is for sale by owner. The commission is typically paid by the seller to the listing brokerage. The listing brokerage divides the commission in some fashion with the broker of the agent who brings an offer.
Compensation is typically made at closing when it's deducted from the seller's proceeds from the sale.
Buyers don't have any say in how much commission is paid by the seller, and they don't have to worry about personally compensating their agents. Of course, they're free to do so if they want to sweeten an offer made on the home by offering to pay a portion of the seller's commission, but again, the buyer cannot pay their agent directly.
How much do real estate agents make on commission?
On paper, listing agents receive $7,654 to $11,120 from the average home sale, while a typical buyer's agent commission ranges from $7,657 to $10,218. However, the average realtor's take home pay in the U.S. is only around $5,667.
This is obviously much less than the commission fees you'll pay at closing. Most real estate agents work through a brokerage, such as Keller Williams, Coldwell Banker, or RE/MAX. Because brokerages cover certain overhead costs, agents are required to pay them a portion of their commission after the sale closes.
An agent's exact take home pay depends on the agreement they've worked out with their brokerage. In general, more experienced agents keep higher percentages of their commission than less experienced ones.
Take home fees for the average sale* 🧑 Listing agent $4,592 to $6,700 🏢 Broker $3,061 to $4,448 💰 Total listing fees $7,654 to $11,120 *Estimates for 2022
What do these fees cover?
While many of today’s buyers often prefer to house hunt on their own, others decide to work with an agent to find a home. For those who choose to work with a traditional buying agent, they’ll find that their agents spend most of their time pulling home listings, driving to tour homes and doing pricing analysis to help them make strong offers.
Once the buyer’s offer is accepted and enters escrow, the agent will spend their time helping coordinate inspections and appraisals, negotiating repairs costs, handling all of the closing paperwork and some light accounting (the agent is responsible for maintaining the financial account used to pay inspectors and appraisers).
Do California Real Estate Agents Pay Their Own Taxes?
Last but not least is the tax factor. California is notorious for having high taxes, and the broker isn’t deducting anything when they pay an agent their share of the commission. That means the agent must subtract taxes each time they receive a commission check.
As an independent contractor, real estate agents must pay the IRS estimated taxes every quarter. The estimated taxes include income tax and the self-employment tax, which covers Medicare and Social Security taxes. You’ll need to reference the latest tax brackets to determine how much should be paid each quarter.
California also has a state income tax. California has 10 income tax brackets – the most in the country. Unfortunately, the state is also known for having the highest state income tax bracket at 13.3%. But that only applies to income over $1 million. California agents and brokers will pay anywhere between 0-9.3%.
At the end of the day, real estate is a profession where your salary isn’t set in stone. Set your sights high and you could be one of the best-paid agents in the country.