Real estate is a valuable asset anywhere in the world. Hence, it’s obvious there’re plenty of opportunities for everyone to make money from the realty business. One among these are real estate agents.
Understanding Real Estate Agency
Before we understand how much do real estate agents make, it’s important to understand what a real estate agency actually means.
In simplest terms, a real estate agency is a business that helps people buy or sell houses. In some cases, they also arrange short and long-term lease, though the rents business is almost extinct nowadays.
For their services, a real estate agent gets some money from the seller and occasionally from the buyer. A lot of us would falsely believe that a real estate agent’s job is easy. It’s not. In fact, a real estate agent has to perform a lot of tasks before concluding a sale or purchase.
There’re other ways too by which real estate agents make money. And in this article, we will explore how much do real estate agents make.
How Much do Real Estate Agents Make?
According to the National Association of Realtors, a real estate agent gets between five and six percent of the agreed price of the property. This price doesn’t include tax and other legal charges. For example, if a house is costing $1 million, the real estate agent gets $50,000 at five percent commission or $60,000 at six percent.
And if the buyer or seller is paying taxes, the commission doesn’t change. As a rule, the commission is payable on the basis of the value of the house that appears on the sale and purchases deed only. A real estate agent cannot charge more commission than the stated value of the property.
Dividing the Income
At the same time, we also have to consider that a real estate agent doesn’t get to keep the entire $50,000. The amount is generally split equally among other realtors and real estate agents who had listed the property for the seller and those who helped in its sale and purchase.
Real estate agents, without exception, work as a group. Meaning, behind every sale or purchase, between four and five different real estate agents are involved. Therefore, the commission of $50,000 eventually boils down to just $10,000 each, when equally divided among five different real estate agents.
Realistically speaking, nobody would make $50,000 or $60,000 for selling a house worth $1 million. Because every seller bargains to bring down the commission. Hence, a real estate agent could make anything between $40,000 and $45,000 or even lesser.
And if this sounds high, think again. All real estate agents who had a stake in buying or selling a property will usually have made a lot of investment on it.
Investments by Real Estate Agents
Now consider a real estate agent earns $10,000 from sale or purchase of a property, part of the money also goes in recovering their expenses.
Some of the major expenses that real estate agents incur before concluding a sale or purchase are:
- Advertising the property online on Zillow, Realtor etc, or offline or both.
- Time and effort invested on making calls to attract clients.
- Time, effort and sometimes fees spent on verifying that the seller is the legit and rightful owner of the place. This is most important because no real estate agent wants to land in a scam or put their customers in perilous position.
- Signboards and hoardings announcing that a property is out for sale or rent.
- Basic maintenance of a property, if the house or plot of land is lying empty because he owner stays elsewhere.
- Taxes and charges payable to the government for a real estate agent license and other permits.
- If a real estate agency is a dual agent- meaning they represent interests of the seller and buyer, the commission can be a fraction of the five to six percent of the sale value.
If we consider how real estate agents work, this amount doesn’t really seem attractive. Hence, majority of real estate agents look for high value deals.
Real Estate Agents & High Value Deals
However, real estate agents can make good money if they’re selling a very high value property. For example, if they help in selling a large plot of land or palatial house that costs say $10 million, the commission would stand at $500,000 to $600,000.
And when you divide this large amount among other real estate agents, the figure is still quite large. Again, this doesn’t really mean that a real estate agent makes lot of money on high value deals. Why? Because selling a grand, palatial mansion or hacienda requires extra efforts. And if the real estate agent has to do basic maintenance, you can well imagine the costs.
Other Ways Real Estate Agents Make Money
There’re few more ways that a real estate agent makes money too. None of them are really easy.
1. Dealing in Hoarder House
If you’re unaware what’s a hoarder house I’ll explain briefly. Some people are psychologically inclined to buy or collect a lot of stuff that they don’t really need. And when they move house, they leave all the hoarded stuff behind.
A real estate agent has to clean the house of all hoarded stuff and get it in shape again before attracting clients. This can take a lot of time and effort. Usually, the buyer won’t pay and the seller might also not pay the full five or six percent.
In fact, most sellers look for discounts from real estate agents. Hence, real estate agents part with one or two percent of the commission.
2. Long Term Leases
A real estate agent can get up to one month rent as commission when someone leases a house or other premises. Usually, half of the amount is paid by the owner and the balance by the person taking it on rent.
For example, if the rent amount is $500, per month, it would be split equally between both the parties. Again, this isn’t usually the case because most homeowners will pay only a fraction of the rent as commission.
The reason lease business isn’t very popular among real estate agents are the very low commissions. It doesn’t justify the amount of effort and time.
3. Improve & Sell
Some real estate agents however make a lot of money by actually buying a house that desperately requires repairs. They’ll buy such properties cheap and spend some money on giving it that much needed facelift.
Once the house is in superb condition, they’ll up the price and sell it. That way, the real estate agent makes money through commissions and earns a hefty margin between the buying and selling rate.
4. Arranging Mortgages & Services
This isn’t quite common but sometimes, real estate agents also get small commissions from banks and financial institutions for getting them home mortgage customers and home insurance buyers. They also arrange legal services for a small fee, if the buyer is from another place and charge fees from the buyer or seller.
Real estate agents don’t really make as much money as we think. Because the real estate market is always the first victim during any political uncertainty and economic downturn. Hence, the trade is getting tougher and tougher by the day.