By Mark Lemmons I June 22, 2022
If you’re looking at a career in real estate, you’re probably searching the internet for average income for real estate agents. The numbers can be attractive and impressive! With the real estate market in Texas booming over the past several years, getting a piece of that pie is appealing to many.
Although it can be attractive, commission-based income can also be scary. You only make what you bring in, and there are also fees and splits to consider – which vary from broker to broker. In this post, I’m going to break down how a real estate agent’s income gets broken down and help you know what to plan for.
Here are 4 things to consider before jumping into the real estate business.
Texas real estate agent makes an average commission of 3% of the price of a home sale or purchase. That means that if a home was purchased or sold at $300,000, the commission to the agent would be $9,000. But, most real estate agents work with brokers with whom they would “split” that commission.
For example, my broker, eXp, has a 80/20 split, where the real estate agent keeps 80% and the broker takes 20%. So, in the case of a $300,000 home sale or purchase, the real estate agent would keep $7,200 (80% of $9,000).
Many brokerages start agents at a 50/50 split because they provide leads and other support – and then work up the commission percentage over time. It’s important to research and compare splits when considering a brokerage, but it’s also an important factor to consider before becoming an agent. You need to realize that although the average commission is 3%, you will not be keeping all of the commission, but will be splitting it with your broker (until you reach cap).
Splits are typically capped at a certain point, at which you keep 100% of any further commissions earned. For example, at eXp, the cap is set at $16,000. Once you have paid $16,000 to eXp, you keep 100% of the rest of your commissions. Let’s use the example of $300,000 as an average home price. $1,800 (20% of your $9,000 commission) would go to your broker per home transaction. You would need to close or sell approximately 9 homes (9 x $1,800 = $16,200) before you hit cap and start keeping all of your commissions.
Other brokerages have different cap requirements, so be sure to do your research.
Finally, since you are an independent contractor, you need to factor in taxes. Independent contractors have income tax liability that full-time, non-exempt employees don’t have. You will be able to write off some expenses to offset your taxes, but you will pay higher taxes on your income. Be sure to factor this in when you are considering your overall income.
Generally, you want to take out 20% of your income to save for taxes. Note that you will only have to pay taxes on the commission you receive, not the overall commission, so you will not have to pay taxes on any commission paid to the broker. Hypothetically, if you bring in $80,000 in commissions, you’ll want to save $16,000 (20%) for taxes. This would reduce your overall income to $64,000.
Real estate is a rewarding career, but it takes an entrepreneurial mindset and a thorough understanding of how the finances work. According to Indeed, Real Estate Agents in Texas make an average of $94,169 per year at the beginning of their careers, and an average of $123,556 when they have been working for more than 10 years. Keep in mind that these figures do NOT include taxes being taken out and are averages.
It’s also good to keep in mind that some brokerages also provide additional financial opportunities like stock awards, bonuses, or referral incentives. For example, eXp gives agents up to $2,800 every year for each agent you personally introduce to eXp. If you have agents who introduce more agents to eXp, you’ll earn a percentage of what they sell. eXp also has the ICON Agent Award which gives agents $16,000 in company stock for meeting various requirements.
At the end of the day, you want to fully understand the financial breakdown of a real estate agent’s commission so that you can make good decisions about your career. If you have any questions, feel free to reach out to me! I’ve been in the business for over 10 years and would be happy to be a resource for you.
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