Do Real Estate Agents Get Paid Hourly?

This is a common question that many people have when working with a real estate agent. The short answer is no, real estate agents do not typically get paid by the hour. Instead, they earn their income through commissions on home sales.

However, real estate agent compensation is a bit more complex than just commissions. Several factors determine how much a real estate agent gets paid and when they receive their payment. In this article, we’ll break down real estate agent pay and discuss do real estate agents get paid hourly. By the end of this article, you’ll have a solid understanding of how real estate agents make their income and the work they do to earn their commissions.

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How Real Estate Agent Commissions Work

The vast majority of real estate agents earn their income through commissions. On a typical home sale, the total commission is 5-6% of the home’s sale price. This commission is paid by the home seller, not the buyer.

Here’s how it works:

When a homeowner lists their home for sale with a real estate agent, they sign a listing agreement that specifies the commission percentage the agent will earn if they can sell the home. This commission percentage is usually around 3% of the home’s eventual sale price.

Once the home sells, the total commission is normally split between two agents – the listing agent who represents the seller, and the buyer’s agent who represents the home buyer. The listing agent typically keeps around half of the full commission, and the buyer’s agent receives the other portion.

So on a $300,000 home sale with a 6% total commission, the breakdown would be:

Total Commission: 6% of $300,000 = $18,000
Listing Agent Commission: $9,000
Buyer’s Agent Commission: $9,000

In this example, the listing agent would earn $9,000 and the buyer’s agent would also earn $9,000. The seller of the home would pay out the full $18,000 commission.

Real Estate Agent Commission Splits

Do real estate agents get paid hourly

However, real estate agents don’t necessarily keep the full amount of their earned commissions. Agent commissions are often split with their brokerage firm.

Here’s how real estate commission splits work:

Real estate agents work under brokerage firms. When an agent sells a home, their earned commission must be shared with their brokerage. The share amount varies based on the agent’s agreement with the brokerage, but it’s usually around 50/50.

For example, if an agent earned a $15,000 commission, they may have to split it 50/50 with the brokerage. This would mean the agent keeps $7,500 and the brokerage gets $7,500.

Some brokerages charge a smaller split, like 30/70 in favor of the agent. So the agent would keep $10,500 in this case, and the brokerage would get $4,500. Newer agents usually start out at a 50/50 split until they gain more experience.

The brokerage split ensures the brokerage earns money and can cover overhead costs. But it means real estate agents don’t earn the full value of their commissions. The agent’s portion of the commission is taxable income.

How Agents Get Paid: Listing Agents vs Buyer Agents

Since listing agents and buyer’s agents perform different roles, their commissions and payment structures also differ.

Listing Agents

A listing agent represents the home seller. Their job is to market the home, show it to potential buyers, negotiate offers, and assist the seller through closing.

As the listing agent, they earn the larger portion of the full real estate commission – usually around 3% of the home’s sale price.

This commission is generally paid out of escrow once the home sale closes. The home seller authorizes the commission payment in the listing agreement they signed when first hiring the listing agent.

Buyer’s Agents

The buyer’s agent represents the home buyer. They help the buyer search for homes, view properties, submit offers, and negotiate the deal.

The buyer’s agent typically earns around 2-3% of the home’s sale price, which comes out of the total commission.

This commission is paid from the seller’s funds at closing. The buyer does not directly pay their agent unless alternate arrangements are made.

Buyer’s agents may earn smaller commissions on individual transactions. But they often close multiple deals per month, adding up to a regular income stream.

When Real Estate Agents Get Paid

Since real estate agent commissions come from home sales, the timing of the payment is tied to the closing process.

Here is the typical timeline of when a real estate agent receives their earned commission:

A purchase agreement is signed by the seller and buyer. This contract states the purchase price of the home and the amount of agent commissions to be paid out.
The buyer arranges financing and completes inspections. The closing date is set once all contract contingencies are met.
The home sale closes and the deed records. At this point the home seller’s proceeds and agent commissions are paid out of escrow by the title company.
The listing agent and buyer’s agent receive commission checks. This typically occurs within a few days after the closing date.

So in summary, real estate agents earn their commissions at the time of closing once the property sale is completed. The commission is disbursed by the closing title company.

For listing agents, this means they only get paid when they are able to close on the sale of a home they listed. There is no commission without a successful sale.

Real Estate Agent Salaries vs Commission

While commissioned sales make up the bulk of real estate agent compensation, some agents also earn a salary or retainer fee from their brokerage.

Salaried Agents

Some Real estate companies pay new agents a salary for their first few years in the business. This provides the agent with steady income as they build their business. A real estate salary typically ranges from $30,000 – $50,000.

Once the agent establishes themselves, they transition to the commission-based model. The salary time period allows new agents to learn the ropes and develop client referrals.

Retainers

Brokerages may pay more experienced agents a monthly retainer fee, especially top-producing agents. This acts as a minimum income guarantee in addition to commissions earned.

Retainer fees help ensure the brokerage maintains their relationship with a valuable agent who closes many deals. It provides some income stability for the agent as well.

So while most real estate agents depend on commissions, salaries and retainer fees do exist in some situations. But at the end of the day, the more transactions an agent can close, the more money they can make.

Do Real Estate Agents Get Hourly Wages?

Real estate agents are not hourly workers – they do not clock in and out, and they do not earn an hourly wage. As independent contractors, real estate agents receive payment on a commission basis after providing a service.

While an agent may put in long hours showing homes to buyers or marketing a listing, their payment does not depend on hours worked. Rather, their commission is tied to the successful sale or purchase of a home.

The only exception would be for assistants working under an agent or broker. An assistant may earn an hourly wage or salary set by the employer. But licensed real estate agents themselves work on commission.

There are a few reasons why real estate agents do not earn an hourly wage:

Flexible work hours – Agents often work evenings and weekends to accommodate buyers and sellers. Hourly pay would be difficult to manage with unpredictable schedules.
Payment tied to performance – Commissions reward results and give the agent incentive to close deals. Hourly work does not directly link pay to productivity.
Better pay potential – Successful agents can earn much more in commissions than an hourly employee salary. The commission structure provides uncapped earning potential.

While commissions come with some uncertainty, they allow the best agents to be highly compensated for their sales performance. Real estate is commission-based rather than hourly.

Real Estate Agent Pay Per Transaction

We know real estate agents depend on commissions. But how much does an agent make per home sale transaction?

Of course the amount can vary greatly based on factors like:

Home sale price
Total commission percentage
Brokerage commission split

However, on an average $300,000 home sale with a 6% commission split between two agents, here is an example commission breakdown:

Home Price: $300,000
Total Commission: 6% of $300,000 = $18,000
Listing Agent: $9,000 commission
Buyer’s Agent: $9,000 commission

If the listing agent splits the $9,000 50/50 with their brokerage, they would earn approximately $4,500 per transaction.

The buyer’s agent may earn around $2,000 – $3,000 after their brokerage split.

A new agent who closes 6 transactions of $300,000 homes in one year could earn around $27,000. An experienced agent who closes 25+ deals could make $100,000+.

The key is closing multiple transactions each month. Just one or two home sales a year won’t produce much income. Transaction volume drives a real estate agent’s annual earnings.

Expenses and Fees Real Estate Agents Pay

While real estate agents do not have many of the expenses that a small business owner might face, such as rent, inventory and employees, they do pay various costs to run their business.

Licensing Fees

Every 2 years, real estate agents pay fees to renew their real estate license. This may cost a few hundred dollars. They also complete state-mandated continuing education classes to keep their licenses current.

Realtor Association Fees

Most agents join their local realtor association and pay annual dues. These fees help cover organized real estate events and educational offerings.

MLS Fees

Access to the multiple listing service (MLS) database of home listings is crucial. Agents pay monthly or annual MLS subscription fees.

Brokerage Fees

Brokerages may charge agents monthly desk or technology fees to help cover office infrastructure.

Advertising Costs

Agents spend money promoting their services through print ads, online ads, mailers, business cards and other branding efforts.

Vehicle & Travel

Agents drive many miles to show homes and attend meetings. Gas, maintenance and mileage add up.

While agents don’t need extensive overhead, they do invest ongoing money into their business operations. These expenses eat into commissions earned.

Taxes on Real Estate Agent Income

Real estate agents are self-employed from a tax standpoint. This means they pay self-employment taxes on their commission income.

After brokerage splits, agents must pay federal income taxes as well as the employer and employee portion of FICA taxes – 15.3% total – because they are their own boss.

Some other tax considerations for real estate agents include:

Completing estimated quarterly tax payments
Tracking all business deductions and expenses
Maintaining detailed mileage logs for car expenses
Hiring an accountant to help with taxes

Because commissions can fluctuate from month to month, making quarterly estimated payments helps avoid facing one huge tax bill. An accountant can also make sure the agent maximizes write-offs for business use of their vehicle, home office, advertising and other expenses.

While commissions may seem lucrative, taxes claim a sizable chunk. Diligent tax planning and compliance are crucial for real estate agents to maximize their after-tax income.

In summary

Real estate agents earn the bulk of their income through commissions on home sales rather than hourly wages or salaries. While commissions reward sales performance, they also come with some instability and unpredictability.

It takes work, sometimes 1-2 years, for new real estate agents to establish themselves and earn sizable, consistent commission checks. But once an agent can close multiple deals each month, they stand to earn a very healthy income.

Real estate careers offer a lot of flexibility and unlimited earning potential for those willing to hustle and provide top-notch service to their clients. Agents pay ongoing costs like licensing, MLS fees and taxes, but the income potential is worth it for those who reach a high-performing level of sales.

FAQs

Q: Are real estate agent commissions negotiable?

Yes, real estate commissions can sometimes be negotiated. As the client, you may be able to ask your agent to reduce their commission percentage a bit from the typical 3%. However, agents have a typical range they like to stay within. Significant discounts on commissions are not very common.

Q: Can you make a living as a real estate agent?

Absolutely. Successful real estate agents can earn a very comfortable living. However, in the first couple years it takes hard work, long hours and robust sales to get your income up. Patience and dedication to establishing your business is important at the start. But once established, agents can make well into six figures.

Q: How much do real estate agents pay for leads?

Paying for leads is one way new agents look to break into the business. Lead services provide the contact info of potential home buyers or sellers for a fee. These fees vary but often are around $50 per lead. More exclusive or targeted leads can cost a few hundred dollars each. Lead costs can add up quickly – so agents try to establish organic lead sources.

Q: How much do luxury real estate agents make?

Luxury real estate agents who sell multi-million dollar homes have the potential to earn very high commissions. A real estate agent selling $10 million dollar homes could make $300,000 or more annually once they establish themselves. Luxury real estate is extremely competitive though – so building a reputation with affluent clients is key.

Q: Do you have to be rich to become a real estate agent?

No, you do not need to be independently wealthy to start a career in real estate. Costs like licensing and training are relatively low. And most brokerages do not charge agents upfront fees – they simply take a split of commissions earned. While it takes time to build your business, the initial costs of getting started are reasonable for most agents.