In this article:
- How do real estate agents get paid?
- How much commission do real estate agents make?
- How much is a referral fee in real estate?
- How much does a real estate agent make a year?
- How much do real estate agents make per sale?
- Opportunities for additional real estate agent income
One motivator for obtaining a real estate license is the potential income for an agent. How much real estate agents make depends on their location, experience, negotiation skills and how many homes they sell in a year, but a six-figure income is not uncommon for an experienced agent in a strong real estate market.
How do real estate agents get paid?
Most agents in the U.S. work as independent contractors under a brokerage, where they earn money from either real estate commission or referral fees.
Real estate commission is the percentage of a home sale price that’s distributed between the listing agent and the buyer’s agent. Commission from sales is the number one way for real estate agents to make money.
Real estate referral fees are another way agents earn money. When an agent refers a client to you, part of your commission will typically go to that agent. These are called referral fees and are commonly used when:
- You’re a new real estate agent and don’t have clients of your own yet.
- There’s a conflict of interest, such as with a family member.
- A client wants to purchase a home in an area outside of your network.
How much commission do real estate agents make?
Commission rates for real estate agents are typically between 5% and 6% of a home’s sale price, and that amount is split evenly between the listing and buyer’s agents, which means the average real estate agent commission is 2.5% to 3%. Dual agency — where you represent both the buyer and seller — is illegal in many states but, if it’s legal where you work, then you can expect to earn the full 5% to 6% commission if you represent both parties.
How does real estate commission work?
When you close a sale, you won’t pocket your entire real estate agent commission.
A listing agent will have to pay their broker’s fee, taxes and any marketing costs and services (photography, home staging, gifts, etc.).
A buyer’s agent will have to pay their broker, taxes and any client service expenses (gas for driving them around, housewarming gifts, etc.).
For example, 6% commission on a $220,000 home is $13,200 — which means that each agent gets $6,600 to cover their expenses and pay themselves. But you don’t always have to settle for the standard commission.
How to negotiate the standard real estate commission
While the standard real estate commission is 2.5% to 3% (according to MLS data), it can be negotiated. You should bring up negotiations when you first meet the other agent or their broker and document the percentage in the listing agreement. If you’re asked to negotiate your percentage to receive less than the standard, you should respond by:
- Reminding them of all the services you provide
- Offering reduced services
- Giving them the names of some discount agents
How much is a referral fee in real estate?
This is negotiable, but 25% is the standard referral fee percentage. From there, it’s up to you and the other agent to determine the final referral commission percentage — just make sure to document the terms in a contract.
How do real estate referral fees work?
Two ways: Either you refer a client to another agent, or another agent refers a client to you. Whichever side you’re on, here’s what you should know about offering and accepting a real estate referral fee:
Accepting a referral fee
You choose whether to accept — so you can turn down any real estate referrals that aren’t worth your time or are for a client who isn’t ready to buy or sell. If you want to accept a referral, make sure that:
- The broker is licensed in their state of operation.
- The referral fees are clearly defined in your referral agreement.
- You’re not sharing commission or paying for services from unlicensed agents.
- You only accept referrals from trusted sources.
Offering a referral fee
You’re giving another agent a client, so make sure you’re setting the agent up for success. If they don’t get paid, you don’t get paid either. Here are our tips for offering referrals:
- Know the client’s timeline for closing and clearly communicate that to the agent.
- Have a standard referral fee percentage outlined in a document that’s ready to sign.
- Include information to give the agent a head start, such as the client’s budget, preferred area and ideal home features.
How to negotiate a standard referral fee percentage
You always want the highest referral fee for yourself — here are some negotiation factors that can be used to your advantage when referring your client to another agent:
- The client has pre-qualified for a mortgage.
- The client has already sold their previous residence.
- The client is purchasing a luxury home.
- The client will likely buy in the next month.
On the other side of the equation, here are reasons to negotiate a lower fee for the other agent when you’re the one taking on the client:
- The client is uncertain when they’ll end up purchasing a home.
- The process will take extra time and resources.
- The client is purchasing a low-priced home.
How much does a real estate agent make a year?
The short answer: Real estate agent income varies by experience level and location. First, you’ll need to know how many houses you can expect to sell per year.
- Beginner: 1-3 homes per year
- Intermediate: 5-10 homes per year
- Experienced: 11-14 homes per year
- Advanced: 15 or more homes per year
Once you have that number, you can figure out your average real estate agent income per sale in your market.
How much do real estate agents make per sale?
Multiply the average sale price in your area by your expected commission rate to see how much you’ll make per house, on average. In Seattle, the median home price is $726,500 (according to Zillow data from May 2019) — so at a standard 3% commission rate, an agent will make $21,795 per sale ($726,500 per home x 0.03 commission).
How much can you make as a real estate agent?
To calculate your expected annual real estate agent income, multiply your average income per sale by your expected number of home sales per year. In Seattle, an agent could make $217,950 in a year if they sell 10 homes ($21,795 per home x 10 homes per year). Here’s a breakdown of an average real estate agent salary in Seattle, based on experience level and the $21,795 expected commission per sale:
- Beginner (3 homes): $65,385
- Intermediate (7 homes): $152,565
- Experienced (12 homes): $261,540
- Advanced (15 homes): $326,925
Home prices vary across the country. Let’s take a look at how much you can make as a real estate agent in major real estate markets (data from March 2019 Zillow Home Values):
You can increase your gross commission income (GCI) by optimizing key data points. Increasing your number of leads, and converting them at a higher rate, will ultimately lead to more sales and less average time per sale. For more information, check out our GCI calculator.
Opportunities for additional real estate agent income
Agents often supplement their income because the real estate market is constantly fluctuating. When you’re starting out, taking on one or more of these side opportunities will provide a boost to your real estate agent income while giving you more experience.
Join a real estate team where earnings are distributed
Real estate teams are groups of agents who work together and share the collective income. Responsibilities can be assigned to different team members, which streamlines the process and allows for a higher total number of property sales than if the agents worked independently. Some benefits for new agents on a real estate team are:
- You’ll obtain more experience and gain exposure to different tasks by helping clients buy and sell homes.
- You can be mentored by experienced agents while still earning some cash.
Take on more responsibility at your brokerage
By taking on additional responsibility, you’ll earn additional income. Some opportunities for new agents are:
- Help with broker price opinions (BPOs) for banks.
- Become a property or apartment manager.
Offer your marketing services
If you have prior marketing experience, you may be able to bill other agents for:
- Creating Facebook ads
- Setting up websites
- Building landing pages
- Designing business cards, flyers or brochures
- Writing listing descriptions
Assist busy agents with showings or open houses
If your brokerage allows it, you can help experienced agents with these tasks while making some cash and gaining valuable experience. Treat it as an exchange — tell the agent that you’ll help them out for a fee and will return the favor if you’re ever too busy. According to Zillow Group Consumer Housing Trends Report 2019 survey data, 62% of sellershost an open house — so there’s plenty of opportunity to step up and help experienced agents. Assisting other agents is a great way to earn cash, and can even lead to the agent giving you their client if they’re too busy or assigning you a cut of the commission if the client ends up buying the property.
While many of these areas require some study, certification or prior experience, they’re a great investment that can boost your income early on and create a foundation for the future. In addition, Zillow offers resources to help grow your career — becoming a Zillow Premier Agent will give you access to best practices, time-saving tips, real estate trends and data and more.
