22 Aug Real Estate Agent Salary: How Agents Get Paid

A career in real estate can be both rewarding and challenging, with the potential for high earnings depending on your level of expertise, dedication and market conditions. One aspect of the profession that often raises questions is the real estate agent salary.

In this article, we will explore the different types of compensation available to real estate agents, including salary, commission, and a combination of the two.

1. Real Estate Agent Salary-Based Compensation

A salaried real estate agent receives a fixed amount of money at regular intervals, regardless of the number or value of properties they sell or buy. This type of compensation is relatively rare in the industry, as it is more commonly used by large real estate firms or companies that have in-house real estate departments. The salary range for real estate agents can vary significantly depending on factors such as experience, location, and employer. The U.S. Bureau of Labor Statistics reported that the median annual wage for real estate agents was $48,930 in May 2020.

(Fun fact: Real estate agents earn MORE money per agent when the market is challenging. When the market is hot, there is a lot of competition which drives down the money earned per agent. So we love recessions sometimes.)

Pros:

• Financial stability: A fixed salary provides a steady income, allowing agents to budget more effectively and reducing financial stress during slow market periods.
• Employee benefits: Salaried agents may be eligible for benefits such as health insurance, paid time off and retirement plans that are often not available to commission-based agents.

Cons:

• Limited earning potential: Salaried agents may not have the same opportunity to earn significant income through high-value sales or a large number of transactions, as their income is not directly tied to their performance.

2. Commission-Based Compensation

The majority of real estate agents work on a commission basis, meaning they earn a percentage of the sales price for each property they help buy or sell. Commission rates can vary, but they typically range from 5-7% of the property’s sale price, with the total commission being split between the buyer’s and seller’s agents. An agent’s specific commission rate is often negotiable and may depend on factors such as experience, reputation and the level of service provided.

Pros:

• High earning potential: Commission-based agents have the potential to earn significantly more than their salaried counterparts, particularly if they excel in sales and develop a strong client base.
• Motivation for success: The commission structure incentivizes agents to perform well, as their income is directly tied to their ability to buy or sell properties.

Cons:

• Inconsistent income: Working on commission means that agents may experience fluctuations in their income, making it difficult to plan for expenses and save for the future.
• Lack of benefits: Commission-based agents are typically considered self-employed, which means they may not have access to benefits such as health insurance and retirement plans.

3. Combination of Salary and Commission

Some real estate firms offer a hybrid compensation model that combines a base real estate agent salary with commission opportunities. This structure provides a level of financial stability while still incentivizing agents to perform well and close deals. The specifics of these arrangements can vary significantly, with some firms offering a lower base salary and higher commission rates, and others offering a higher base salary with lower commission rates.

Pros:

• Financial security: A combination of salary and commission provides a more stable income than a purely commission-based structure, reducing financial stress during slow market periods.
• Motivation to perform: Agents are still incentivized to excel in sales, as their total income will be influenced by their ability to close deals.

Cons:

• Limited earning potential: While a combination of salary and commission provides some financial security, it may also limit an agent’s earning potential compared to a purely commission-based structure.

When considering a career as a real estate agent, it’s essential to weigh the pros and cons of each compensation type. Factors such as personal financial goals, risk tolerance, and other sources of income will weigh on your decision. In the end, it’s a great business no matter how you get paid!