Thursday, November 08, 2007

How Much Do Real Estate Agents Earn?

Many people think real estate agents make huge amounts of money. Some do. Most don't. But lots of consumers want to know "how much"? Because agents are so easy to poke fun at, the media often try to present the figure in a way that indicates real estate agents are overpaid.
Maybe we'll bust a myth about that. Maybe not. During the writing of this blog, we'll calculate how much agents earn in commissions. Right now, as we write the blog, we don't know what the answer will be except that commissions are down from last year. We intend to calculate the figure as we go.

So let's start.

The median average sales price in America right now is $211,000 and we're currently on a pace to sell 5 million homes. Simple multiplication provides a dollar number on which the total real estate commissions will be based. Over 1 trillion dollars worth of homes sold. That's a lot.

Most of those sales will pay a real estate commission. Folks think that the typical commission is 6%, but it varies and by law is negotiable. Some "full service" agents charge seven percent. There are "discount brokers," too - and sellers will make different kinds of deals with companies offering different levels of services.

Combining all that together, the average commission charged per deal is between 5% and 5.5% depending on the region. Although the national average is probably around 5.14%, we'll go with a figure of 5.25%, just to play on the safe side. (In eastern Massachusetts, it is typically lower)

That comes out to a total of $55 billion. The number is probably high because the estimate for 2006 was a total of $61 billion. Sales are much slower this year and prices are down. But we'll go with $55 billion. According to estimates, between 22% and 27% of the total goes to the company. That leaves between 78% to 73% for the agents. Sure, some experienced agents have higher splits. Some have lower splits. Some even get paid a flat fee or a salary. To make it easy, let's assume that the higher end applies - 78%. That leaves $43 billion for the agents.

How many agents are there?

Though it is hard to put a number on it, states like California estimate they have one licensed agent for every 52 citizens. The Wall Street Journal estimates there is one real estate agent for every 75 people in America. That would be over 4 million agents! Though that many might be licensed in their individual states, most of those aren't actively selling homes. We won't use that number.
The National Association of Realtors claims 1.3 million Realtor members. Most of those are agents, but not all are actively involved in the business. At the same time, not everyone selling real estate is a member of the National Association of Realtors, either. They are still real estate agents, just not Realtors. Even lenders and appraisers are selling real estate nowadays.
So how many folks are actively working to sell real estate? Approximately 1.25 million says the Journal.

That sounds about right.

The average agent, then, would earn about $34,400 based on current values at the current sales pace. Some more. Most less.
Less an average 14% in expenses that the agent will incur. Total? $29,584. And that's only if they earn the full commission on the sale. The fact is, most sales involve 2 agents that split the commission equally.
How do we check the figures? According to independent sources, the average commission charged per house in the USA in 2007 is $11,000. With 5 million sales, that would be...(we promise we didn't check this in advance...)

Total commissions of $55 billion.

From Armstrong Field Real Estate's November 2007 Real Estate & Mortgage Newsletter

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