I’m getting more questions from real estate newbies wondering how real estate agents make money. And the answer isn’t necessarily straightforward. In fact, many active real estate agents are wondering the same thing! Because, let’s face it, when you’re income is entirely commission-based, making money can be an elusive endeavor.
So today, we’re discussing how real estate agents make money…from multiple points of view. If you’re only considering a career in real estate, we’ll cover the basics of making money via commission from closing sales. And if you’re already licensed but the money’s just not coming in as expected, we have some solutions for you as well!
Here’s how real estate agents make money.
How Real Estate Agents Make Money – The Traditional Way
When most people ask how real estate agents make money, they’re wondering about commissions from real estate sales. As in, how exactly does the real estate commission pay structure work?
Here’s how real estate commissions work:
- You work your butt off to get new clients. Listings are harder to get, but typically require fewer hours of work once you have them. Buyers are easier to get but can take up a lot more of your time.
- You work your butt off to close a deal. This means you’ve landed your clients, assisted them in getting an accepted offer, and brought the offer safely through the escrow period to closing. You only get paid once the deal is final and ownership of the property has transferred.
- No, you don’t get 6%! Real estate commission percentages are always negotiable, but in most markets, 6% of the sales price is standard. This doesn’t mean you get 6%. The total commission is first split between the agents; buyer’s agent gets 50% of the commission, as does the seller’s agent (so each agent gets 3% of the sales price in a standard 6% rate structure). Some states allow dual agency, in which the same agent handles both the sellers and buyers, but this isn’t the norm. Now, your 3% has to be split between you and your broker. This split is negotiated with your broker beforehand, but most new agents split 50/50 with their broker (agents with experience who bring in more business get a higher percentage. So your 3% becomes 1.5% of the sales price.
- And then you have expenses. As the listing agent, you likely incur marketing expenses, and as the buyer’s agent, you incur auto expenses for all those showings. There are also general expenses incurred while marketing yourself as an agent (website fees, social media ads, etc).
This is basically how real estate agents make money the traditional way. It can be incredibly lucrative or severely disappointing, depending on your ability to land clients and close deals.
An example of commission income
Take a $250,000 home as an example. With this sales price, you’d make a $3,750 commission (before expenses – assuming a 6% commission split with the other agent and a 50/50 split with your broker).
The average home in your market may be more or less than $250K, but this gives you an idea of a standard American real estate commission check.
How to Improve Upon the Traditional Way
There are a few things you can do as a real estate agent to increase your traditional real estate commissions:
- Work with higher-value properties. With the same commission split structure notes above, a $500,000 property would get you $7,500 instead of $3,750. Luxury agents can potentially make over $40,000 in a single commission!
- Negotiate a higher split with your broker. Why not ask for a 55/45 split? Or even a 60/40? Real estate agents negotiate for a living, so practice your negotiation skills to get yourself more money on every sale!
- Improve your sales skills. The more people you convert from leads to clients and clients to closings, the more money you make. There are lots of great books to teach you how to improve your real estate sales skills.
- Get more clients. More clients equals more closings equals more money! Make sure you’re maximizing your prospecting efforts and your marketing efforts.
By taking advantage of these improvements, you can make substantially more money via the traditional real estate sales commission structure.
How Real Estate Agents Make Money – Clever Ways
Here’s the brilliant thing about real estate: your income potential is unlimited! This limitless income goes far beyond the traditional commission pay structure.
Here’s how real estate agents make money in unexpected ways.
Real Estate Investments
If you’re in real estate, you already know it’s one of the best investment opportunities around! Savvy agents make money from real estate investments of their own. You could have rental properties, fix-and-flips, or mortgage notes. You could wholesale, buy REITs, or crowdsource. In fact, we found 18 different ways to invest in real estate!
Offering Additional Services
Too few agents expand their service offerings. Which is a shame because 1) people need more real estate services than just buying and selling, and 2) the grunt work for these services can largely be outsourced to an in-office admin or VA (virtual assistant)
Here are a few ways real estate agents make money with additional services:
- New home photoshoots. Younger generations are all about documenting their lives. And new home photoshoots (like engagement photos or newborn photos) are growing in popularity.
- Property tax appeals. Help your homeowner clients reduce their property taxes in slow markets. This is the perfect recession-proof real estate service, because tax appeals pick up when home values slow.
- Property management. Screen tenants and manage leases for your investor clients’ income properties.
To learn more about each of these services (and more options!), check out 5 Services to Skyrocket Your Real Estate Business.
Making Passive Income Online
Passive income online sounds too good to be true, right? Well, I’m living proof that it’s entirely possible. With zero extra effort, I make a few hundred dollars each month in purely passive income. And I can show you exactly how to do the same thing. It all comes down to your real estate website.
Now look, as a real estate professional, you should absolutely have your own website, independent from your broker’s site. Your website establishes instant credibility, helps you get found in online searches, demonstrates your authority as the expert, and builds trust with your prospects (see our top 10 benefits of having your own site). But aside from all those business-building benefits, your real estate website can also be a passive money-maker.
My favorite ways to make passive income online (the ways I rely on month after month) are:
- Affiliate links: links on your website (or podcast or social media channels) that help your audience access a useful product or service. Think of them as automated referrals.
- A curated business directory: you compile a list of the best electricians, plumbers, HVAC specialists, etc. for your area. Local businesses can apply for a spot on your list with an application fee, and your assistant vets them to make sure only the best vendors make your list.
- Advertisements: Ads aren’t for everybody, but they can be a good money-maker under the right circumstances. My recommendation to most agents is to place ads on blog posts but not on your other web pages. However, if you’re a luxury agent, you’re probably better off skipping ads altogether.
- Sponsorships: Sponsored blog posts are a great way to make money on a blog post you’re already writing for lead-gen purposes. You simply find a vendor to sponsor your post for a reasonable fee in exchange for a shout-out on the post. You see this all the time with food bloggers creating recipes with branded ingredients. But you can do the same with home vendors or home maintenance products.
For more on making money from your website, check out 12 Ways to Make Money from Your Real Estate Website (warning: some are passive, some are not). Oh, and if you don’t already have a website, consider building one of your own. It might sound crazy, but will all the tools available today, even non-techies like me can build professional websites quickly and inexpensively. Check out How to Build a Real Estate Website for completely free step-by-step instructions.
Selling Digital Real Estate Products
I love when agents sell digital real estate products because it gives the agent a relatively passive income stream while boosting their authority as a real estate expert.
Digital products are things like eBooks, online courses, and downloadable templates. You invest the time in creating them once, then enjoy the income from sales of your products month-after-month (with just a bit of marketing upkeep to keep your products in front of people). The trick to being successful with digital products is to keep your products relevant to your chosen niche. Say you work with investors, for example; you can create books, courses, and templates for real estate investors. Who knows … you may even land a few new clients thanks to your products!
How are YOU Going to Make Money?
Now that you know how real estate agents make money, you just need to decide how you’re going to do it. Are you going to focus on commissions from real estate sales? Or branch out to diversify your income? Let us know your thoughts in the comments!
