If you want to start your career as a real estate agent, you’ll have to remember one thing. Unlike other jobs, you’ll be paid through commission, no fixed salary. This sometimes can be challenging for a few, but if you have an entrepreneurial mindset and willingness to take on challenges, it can pay off. You can benefit financially from this and create your fortune.
How much money do real estate agents make through the commission system? What is the commission rate? If these are your questions, this article is for you.
Real Estate Commission: How It Works & Rates
Agent Commission
If you look at other sales positions in different businesses, they also get paid as a form of commission. When you’re getting paid through commission, you’ll have to close more deals to earn more money.
It’s also the same for agents. When you sell more properties, you’ll get more commission from them and earn more money. Again, the commission rate depends on a few factors, for example, the value of a property. If the value of a property is higher, you’ll get a higher cut from that deal, which means more money.
Commission Rate
The commission rate varies from one state to another. But usually, it stays between 5%-6%. For example, in California, the commission rate is 6%. On the other hand, it’s 5.46% in Colorado, which matches the national average of 5.45%.
If the commission rate is 6% and the value of the property is 600,000 USD, a real estate agent will get 36,000 USD as a commission. As it takes about 30 to 40 days to close a deal, this is a good amount of money in such a short time. However, this money is further split between brokerages and other parties. But still, real estate agents manage to get a good amount of money from each transaction.
How It Works
As I mentioned above, the commission is further split between real estate brokers and other parties. This commission split is made to protect the real estate agent from lawsuits by property sellers or buyers.
If you’re a new real estate agent, you’ll get a 60 percent cut from the total commission, and the brokerage will take the rest. Again, some experienced real estate agents take up to 80+ percent of the total commission, and the real estate brokerage takes the rest. This split is entirely depending on your negotiation skills and the brokerage.
To find out how much money a new real estate agent makes each transaction, let’s go back to the previous example. If the total commission is 36,000 USD, it’ll be split between the buyer and seller agents, which is about 18,000 USD. As I mentioned earlier, a new real estate agent gets 60% of the commission, which means the real estate agent will get around 10,800 USD per transaction, and the brokerage will get the rest of 18,000 USD. Again, some real estate agents set yearly earning goals for the brokerage, and if they manage to meet the yearly earning goal, the real estate agent won’t have to split any commission after reaching a certain amount.
