How do real estate agents get paid? Commission is king

However, as those trying to make a living working in the real estate world will tell you—it’s not easy, especially when you’re just getting started. Many of the celebrity real estate agents, like Ryan Serhant or Barbara Cochran, have significant additional income from things like television shows and books.

“I think people might underestimate how competitive the space is. You have a lot of agents in the industry, and not a ton of folks that are as successful as what they might portray,” says Jason Aleem, chief of real estate services at Redfin.

The U.S. Bureau of Labor Statistics says real estate brokers and sales agents earn just $56,620 per year in median pay, according to the U.S. Bureau of Labor Statistics.

With most people in the real estate world earning their money not via a salary—but through commission, figuring out how real estate agents get paid can be complicated. Fortune has you covered.

Homes exchanging hands

The most common and obvious way realtors land money in their pocket is when a home exchanges hands.

“Agents basically earn dollars from commission—either they’re representing a seller and that seller is paying a certain commission to them to sell their home, protect your interest, get them top dollar, or you’re working with a buyer who’s working with us to help them find a home identify what they need,” Aleem says.

There are different business models within these transactions. Agents may work solo, work as part of a team and split with their broker, or work more à la carte and charge by the hour or activity, Aleem adds.

Sales commission rates have typically averaged around 5–6%—and split between the buyer and seller agent. However, the future of commission is up in the air because of settlement reached this year with the National Association of Realtors (NAR). While this is welcome news for homebuyers and sellers, it does not bode well for agents, since commissions may be soon reduced by up to 30% over time.

Nevertheless, the general gist is that the more houses you sell or help someone buy, the more commission you can take home.

In the rental space and beyond

The number of rental housing units in the U.S. has gradually increased over the past few decades; in fact, in 2022, alone there were over 44 million units occupied by rentals, according to data compiled by Statista.

Real estate agents play major roles in helping investors and property owners keep the units occupied. Not only do they help in the initial leasing process—in which they may gain commission—but they may also sometimes serve as a property manager of sorts—playing the role as the liaison between tenant and owner.

From the leasing side, agents can help individuals find rental units and properties and negotiate their lease, which may yield the agent a finders fee. This could range from a flat fee, a percentage of annual rent, or the cost of one month of rent.

This can apply to housing units of all types, whether its single family, apartment, condo, or commercial space. If you’re looking, and someone is helping you find it, the agent is going to want a commission for their time and service. There is also the world of real estate advisory, in which agents can earn an income just from their insight.

“There’s a lot of different ways when you’re looking at the sales side of real estate where people earn income,” Aleem says. 

Becoming a broker

After about three years of licensed real estate experience and additional education requirements, an agent can become a broker. This allows individuals to work independently as well as hire agents. Brokers can not only continue to work with their own clients, but they also get part of their agents’ commissions.

This is the path Aleem took. After becoming an agent at the age of 21, he gained enough hands-on experience from a broker to become a broker himself, and then eventually later join Redfin. 

Those with the entrepreneurial spirit to become an agent and later start their own brokerage can clearly become successful in the real estate world, but it takes hard work and many long days. There remains significant turnover among real estate agents—with thousands leaving the field each year. Among those who stick out, securing a transaction is tough. Aleem says the average agent only makes about four to six transactions a year—which includes a chunk who make none.

The takeaway 

Earning money in real estate is complicated. With new rules coming this year about commission stemming from the National Association of Realtors settlement, it is unclear what the future will look like for the world of real estate. As a largely independent professional, there is oftentimes no guarantee of income, health benefits, or retirement systems. You are your own support system. While this may seem daunting, for those who really enjoy freedom to craft their own days and future, real estate is an exciting space.

In the meantime, it is important to keep in mind that it’s no joke that those who work the hardest see the most reward. If you can strike the perfect balance between being a people person and businessperson, you may be on your way to success.

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