Looking for a job with high paying potential? Becoming a real estate agent is one way you can earn a six-figure income, even if you don’t have a college degree.
However, many people earn less than six figures, and most even quit their work as a real estate agent before they earn their first commission.
How much can you earn as a real estate agent? We explore the income potential for real estate agents in this article.
How Much Can You Earn as a Real Estate Agent?
The vast majority of real estate agents are commission-based agents. That means that they earn most (or all) of their income when they sell (or help buy) a house. Generally speaking, when a person sells a house with the help of a real estate agent, the seller pays a 5-6% commission on the sales price of the home. The commission is then split between the selling agent and the buying agent. A common arrangement is for each side to earn a 3% commission. When selling a house for $250,000, each agent can expect to earn $7,500.
Of course, the commission may be split among more than just the buyer and seller. Then, the broker (i.e. the company that the agent works for) may also earn a piece of the commission (up to 50% for new agents). Real estate agents also need to pay for their own expenses (including driving customers around, professional association fees, signs, advertising expenses, and other expenses).
So, in the above example of earning $7,500 on the sale, the individual agent my only get $2,500 or so after expenses.
With so much money riding on each transaction, the real question is: how many transactions can a real estate agent complete each year? On average, members of the National Association of Realtors complete 12 transactions each year. If the average real estate agent earns $5,000 per transaction (after expenses), they would net $60,000 annually. However, these real estate agents have an average of 10 years of experience. Newer real estate agents will likely sell even fewer houses, and have lower incomes.
According to the Bureau of Labor Statistics, the average real estate agent earns $45,990 each year, but the range in income is massive. One-tenth of real estate agents earned less than $23,000, and 10% earned more than $110,000. It is important to note that some real estate agents only work on a part-time basis, but most work a full 40 hours per week.
What Does It Take to Be Successful as a Real Estate Agent?
If you want to earn a six-figure income as a real estate agent, then you’re going to need more than just a few yard signs to earn a great income. In particular, real estate agents need to be very careful to watch their expenses, especially advertising expenses (on sites such as Zillow) which can eat up a huge chunk of profits. The more money you can keep on each transaction, the more money you’ll earn overall.
When you do spend money, you’ll want to be very careful about how you spend it. Some real estate agents choose to invest their advertising dollars in Facebook ads, and maintaining a clean and easy-to-find online presence. Others invest in mailers to send to people that may want to sell their house in the near future. Some successful agents work on growing their “organic” social reach by creating custom videos for each homebuyer. These videos have music, pictures of the new house, and of the buyer outside their house. Many happy clients share these videos on Facebook to announce their big purchase.
Eventually, many real estate agents turn into a broker and hire agents to work under them. These agents have somewhat lower costs (which are covered by the hiring agent), but they earn lower commissions since the hiring agent takes a cut. Adding agents to your team is one way that many real estate agents add income without adding a ton of extra work.
Another important consideration is to treat each customer with great customer service. Although buying a house is a big deal, people buy and sell houses as often as every few years. If you’re a great agent, you will have repeat customers (and customers who refer their friends to you). Word of mouth is still the most powerful way to generate business.
With this changing environment and technology, it's harder than ever for agents to stay relevant. We talk about this a lot (read the comments) in our article on What Do Real Estate Agents Do Anymore? It's garnered a lot of attention (pros and cons) from agents and people alike.
Also, it really does pay to be in an expensive housing market. Selling $100,000 condos earns next to nothing, but selling $500,000 to $1,000,000 homes on the regular can be a much more lucrative prospect.
How Quickly Can You Generate Your First Commission?
One of the big keys to becoming a successful real estate agent is generating your first commission quickly. Real estate agents often have to front several thousand dollars worth of costs (licenses, education, ads, and signs) before ever finding their first client. The longer it takes to generate your first commission, the longer you’ll bleed out money without being compensated.
To be sure you earn money quickly, let your friends and family know that you’re a real estate agent. Let people know via social media, and through personal contact. Whenever people mention they might move, let them know you’re an agent. It might sound obnoxious, but you have to get the word out. Once you’ve completed a few transactions, you should start to see your business grow through referrals.
If you need an income before you can generate your first commission, you might want to find hourly work at a real estate agency. Whether you’re doing clerical work, advertising work, or marketing, you’ll be gaining experience in the right field and earning an income. Hopefully your work at a real estate agency will also leave you with some time to build your business as an agent too.
Warning: You Need a License
In general, to become a real estate agent, you’ll need to become licensed in your state. If you live near a border, you’ll probably want to become licensed in a few states. The requirements for licensure vary by state, but you’ll generally need to pass a test and be at least 18 years old. The test will cover a few topics including real estate laws specific to the state where you’ll be licensed.
Aside from your state licensure, you don’t need any other certifications. Continuing to learn about your field is important to growing as a real estate agent, but actually earning the certificate isn’t likely to bring you any new business.
It's important to understand how real estate agents are compensated when considering the field. If you look at every real estate license, the average home sale per license is one every two years. That means many agents aren't making much money.
As a consumer, when you hire an agent, you want one that it's the top 10% of earners. This proves they have a track record of selling homes in your area. You probably don't want one that only sells 1-2 homes per year, even if they give you a good break on commissions.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.