Does my Realtor® make too much money? (2 of 2)
In last week’s blog I started the discussion about a Realtor’s® commission. If you have interest, go back, and read Part 1. This week I’m breaking down the difference between the check at the closing table and the income of a real estate agent.
I will give you statistics, then I will give you anecdotal reality: The median gross commission income of a part time Realtor® (10-30 hours per week) is $43,400. The average gross income of a full time Realtor® (30-40 hours per week) is $87,550. The licensee devoting 40-60 hours+ per week is earning $145,000. * The gross commission is the number seen on the settlement statement. (The one my client “wow-ed” over.) But, this figure reflects the “whole pie” not the “piece” that the agent takes home as income.
The Agent works under the legal umbrella of a Broker. The Broker provides the “B’s”: brand, building, backing and, to varying degrees, mentoring, and training. Once that commission check leaves the closing table it goes to the Broker who takes 5%-50% of the total commission depending on the terms of the Agent’s contract with the Broker. Out of the licensee’s side of the ‘split,’ is paid monthly fees for the office rental and/or services, technology, systems, and any marketing and ‘tools’ needed for the job. Then, a responsible Realtor@ sets aside money for taxes, retirement, and future business investment. Because Realtors® are independent contractors health insurance is our responsibility. (In 2020, mine was approaching $2000 a month. My retired husband took a job at Costco purely for the health benefits. Even if they paid him nothing, we gained $24,000 a year.)
Depending on the amount of the Agent’s split with the Broker and tax obligation, the average agent’s actual income is 36% of the initial 3% commission. Using that average, let’s look at the actual income of a Realtor®. In Columbus the average sales price of a home is $275,000. A 3% commission from that sale is $8250.00. After the Agent pays the Broker, Office fees, and taxes the “take home” is approximately $3000. The average agent has 10 transactions a year. You do the math. Therefore 87% of newly licensed Realtors® will be out of the business within five years. **
Can a Realtor® make a good living? Absolutely. The top 10% of salespeople make well into 6-figures; the top 1% are earning 7-figures and retiring where the sun shines. My work has compensated me well for 25 years, but make no mistake, it’s work. 7 days a week, often 10 hours a day. It is self-employment at its best and worst.
Still, many Realtors® will tell you that we love our jobs. We love the freedom of self-employment, the limitless potential of income, (to some degree) holding our financial destiny in our own hands. We like having no boss but ourselves: often the toughest of task masters. We like waking up each morning with a plan: knowing that a text from a client will throw that plan to the side. We appreciate working in our home offices while the sun shines outside, knowing that if we feel like it, we can get leave that office to enjoy that sun. We thrive on the energy of creating a business and working with colleagues. We like houses and design and love the love people put into their homes.
Finally, the best Realtors® will tell you the real “pay off” is the satisfaction with the knowledge that we guided a client to homeownership or their next step in life with expertise, sterling ethics, and determination to help them make a solid investment in their new home. While it doesn’t show up on the settlement statement, knowing you earned the thanks, trust and lifetime loyalty of a client is gold.
This blog is written by Kathy Chiero. Kathy is the Team Lead for The Kathy Chiero Group of Keller Williams Greater Columbus Realtors. Thinking of Buying or Selling? Find us www.OurOhioHome.com
- The National Association of Realtors, 2020
** www.theclose.com February 18, 2021
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