Why Do Real Estate Agents Make So Much Money?

Why Do Real Estate Agents Make So Much Money?

Below, we’ll explore just how much the average real estate agent makes, why commission fees are “so high,” and reasons why working with a realtor is still worth it.

A picture of a person counting hundred dollar bills.

Realtors may make good money off the sale of your home, but it’s probably not as much as you think.

How Much Money Do Real Estate Agents Actually Make?

According to the Bureau of Labor Statistics, the median annual wage for real estate sales agents was $49,980 as of May 2022. The median annual wage was $62,190 for Real estate brokers. This profession earned a median annual wage of $52,030. For comparison, the median annual wage for all occupations in May 2022 was $46,310.

There are realtors who make far more money each year, but it’s not the norm. In 2021, only the top 10 percent of real estate agents earned more than $102,170. The top 10 percent of real estate brokers earned more than $176,080.

How Much Do Realtors in Florida Make?

Realtors in Florida make less than the average realtor in the United States. In May 2021, Florida real estate sales agents earned a median wage of $47,970 and an average wage of $47,970.

Annual Wage Real Estate Agents in Florida Real Estate Agents in the U.S.
10th Percentile $23,570 $28,270
25th Percentile $30,370 $35,880
Median $47,970 $48,340
75th Percentile $60,820 $75,940
90th Percentile $96,580 $102,170

How Do Real Estate Agents Make Money?

Real estate agents make money by helping clients sell, rent, or buy properties. The majority of real estate agents in the United States work solely off of commission. So, instead of getting paid hourly or weekly, they receive a portion of the home’s sale price after closing. Some receive a salary from their agency along with a commission.

Real estate commissions are negotiable. But, typically, real estate commission is 5% to 6% of the sale price. The commission is then split 50/50 between the seller’s agent and the buyer’s agent. For example, consider a home that sells for $400,000 with a 5% commission. Each agent would walk away with $12,000 in commission.

Why Do Real Estate Commission Fees Seem So High?

Commission fees may seem high on a single transaction, but keep in mind that they’re designed to compensate a realtor for their time, expertise, and expenses.

Let’s take a look at some expenses and reasons that justify the cost of a real estate agent:

1. Brokerage Fees

Realtors don’t pocket all of the commission for themselves. Part of it goes toward covering brokerage fees. All real estate agents have to work with a brokerage, but fees vary. They’re anywhere from 10% to 50% of the total commission earned.

2. Marketing Fees

Good listing agents understand how to market a home to attract potential buyers. While some methods of marketing are free, others aren’t. Real estate agents commonly set aside 10% of their gross commission income for marketing.

Common marketing expenses include:

  • Photography
  • Staging
  • Email marketing
  • Digital ads
  • Flyers
  • Yard signs
  • 3D Matterport Tours
  • Open House costs

3. Technology Expenses

Realtors rely on software and technology to help your home-selling or home-buying process run as smoothly as possible. Common software tools include cloud document storage, transaction management systems, accounting tools, contact management systems, and a Multiple Listing Service (MLS).

4. Other Business Expenses

Some realtors work for real estate agencies or firms. Others are self-employed. In either scenario, they encounter other business expenses. These include:

  • Transportation: gas, repairs, maintenance
  • Professional fees: real estate license fees and renewals, professional memberships
  • Operational: office space, utilities, paper and printer ink, website maintenance, phone, computer, lockboxes
  • Career development: continuing education courses, real estate conferences

5. Realtors Only Get Paid When the Sale Closes

Realtors aren’t guaranteed a dime when they start working with clients. They aren’t paid upfront for the time spent searching for homes, setting up open houses, giving tours, and responding to your emails and calls. They only receive compensation for their efforts when a sale closes. And, unfortunately, not every client results in a closed sale.

Potential sellers might decide not to sell their home or to rent it out instead. Potential buyers might change their minds and decide to stay put or rent an apartment instead. In some cases, clients are serious about buying, but not until they find the perfect home. This can result in years of work on the realtor’s end before getting paid.

The commission earned on a sale that closes helps to compensate for all of the time “wasted” with other clients. While that might not seem fair, keep this in mind: only getting paid for results motivates realtors to work hard. And, the higher the commission-earning potential, the more time and energy they’ll pour into helping you.

Is Working with a Realtor Worth the Expense?

A home is typically your largest investment, whether you’re buying or selling. So, it only makes sense to have an expert on your side as you navigate the transaction. Going alone could be a costly mistake.

For Sellers

If you elect not to work with a realtor when selling your home, it might feel like an easy way to save money. However, it could just be an easy way to lose out on money.

A recent report from the National Association of Realtors found that For-sale-by-owner (FSBO) homes sold for significantly less than other homes in 2021. How much less? Well, typical FSBO homes sold for a median of $225,000. Typically agent-assisted homes sold for a median of $345,000. That’s a 42 percent difference in sale price.

In many cases, FSBO sellers still need to pay a commission to the buyer’s agent, which is often 2% to 3% of the sale’s price. Selling the home yourself rather than working with a realtor would only save you 2% to 3%, and you may have a harder time getting top dollar for your home.

For Buyers

Only 10 percent of homebuyers choose to purchase a home without a realtor. The other 90 percent use a realtor, and for good reason. Realtors understand the market, how to negotiate, and how to put together contracts. Without that knowledge, you could end up in a neighborhood that doesn’t meet your needs, struggle to make winning offers, pay more for a home than you need to, or neglect to include contingencies that let you walk away from the sale if problems arise. All of those mistakes could end up costing you far more than the commission fees. Not to mention the added stress and time on your end.

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