Are you aspiring to become a real estate agent? Are you wondering at the possibilities of getting rich out of the business? Well, we are going to show you some proven strategies that will help you make good money out of the business.
Real estate refers to a property that is made up of a land, the buildings on it, the natural resources in the soil including the plants and animals on it; the air rights above the land and the underground right beneath the land. In recent times however, real estate has become synonymous with residential living but the truth still remains that real estate goes far beyond that.
Based on what it is intended for, real estate can be classified into industrial, commercial and residential real estates. In the United States of America, real estate is big business. According to a recent statistic, there are more than 1.3 million real estate agents in the United States alone with states like Arizona, Hawaii, Florida and Washington D.C having a larger chunk of agents. In fact, a lot of people are more likely to go through real estate agents when selling their homes as opposed to just 9% of seller who sold their homes themselves.
Real estate agents belong to and work for real estate brokers, therefore any fee that is paid to the real estate agents passes through the broker who then pays the agent the stipulated commission and signs a listing agreement with the seller.
Real estate agents make their money through the following ways:
Real estate commissions: most professions like say a doctor or an attorney get paid by the hours of work they do in a month but a real estate agent does not get paid until he or she closes a transaction irrespective of the effort he puts in and regardless of if he is working with the buyer or the seller. This means that even if you spend hours upon hours with a buyer or a seller without “closing” the deal, you will get a total of zero dollars as a reward for your efforts.
Without doubt, most real estate agents get paid mainly through commissions. Commissions are fees that are charged by agents or brokers for transactions in real estate. Usually the commission is a percentage of the selling price but at times, it can also be a fixed price that is independent of the amount that the property costs.
So who pays the commission? Typically, the seller pays the commission. However, in a way, it is the buyer that always pays the commission. This is so because the commission is also included as part of the sales price during the transaction. If this were not to be so, then the sales price would have been lower. Normally, the commission is 6 percent of the total cost of the property. The 6 percent is then cut into half. 3 percent goes to the seller’s agent (that is the listing agent) and the other 3 percent goes to the buyer’s agent.
For example, if a house that is worth 1 million dollars is sold and as an agent you are anticipating 3 percent on either side (sellers or buyers) of the deal, you will get $30,000. The agent will normally keep 70 percent of the money while the agent’s broker will get 30 percent from the transaction. This means that the agent will get $21,000 minus a few fees here and there. It is worthy of note that all real estate commissions are negotiable but most agents will not agree to negotiate down their commission. Commissions vary from agent to agent and new agents may charge less commission when compared to older and more experienced agents.
Real estate commissions are usually shared by various people. In a normal scenario the following categories of people get a cut out of the commission:
- Buyer’s agent: this is the agent who represents the buyer.
- Buyer’s agent’s broker: this is the broker whom the buyer’s agent works for.
- Listing (sellers) agent: this is the agent who took the listing from a seller.
- Listing (sellers) broker: this is a broker whom the listing agent works for.
In some occasions however, the commission may be split among fewer number of persons. Take for example in a scenario where a broker lists a property and is then successful in finding a buyer who is interested to pay for the property. He will keep the full commission (6 percent like in the previous scenario). In the same vein, if a listing agent acts in the capacity of both a listing agent and a buyer’s agent and sells the property, the listing agent will then have to split the commission with his or her broker only.
As mentioned earlier in this article, real estate agents only get paid when they close a deal, but in some cases an exception can be made. For example, if a seller who had previously agreed to sell his property changes his mind and refuses to sell his property after the broker has found a buyer who is willing to pay for the property, the broker may still be entitled to get a commission. Other instances include:
- When the seller agrees with the buyer to cancel the transaction.
- When the seller brings in term and conditions that were not specified in the initial listing agreement.
- When the seller fails to deliver the property to the buyer within the specified period of time that was agreed on earlier.
- When the seller whose spouse initially signed the listing agreement refuses to sign the deed of the property.
- When a seller commits a fraud regarding the transaction of the sale of the property.
How much do real estate agents make?
Real estate agents are normally paid through the commissions the make from sales of properties. Sometimes however, there may be a deviation from the norm. In rare cases, they may be employed like regular staff and placed on salary. Take for example Redfin.com, an online property search site. They pay their real estate agents specified salaries and also offer commissions that are determined by the level of satisfaction of the customer who they attended to.
When you research how much real estate agents make from Google, you will get an estimate of about $40,000. That is to say those real estate agents who make above this figure are well off while those who make below that mark are under performing. To an extent, this figure is a fairly accurate figure of what the average real estate agent makes, but in the larger scheme of things, it gets a little more complicated than that.
For starters, being a real estate agent is like owing your own small business. If you were to ask about how much a small business owner makes or earns, the answer you will most likely get is that it depends. Some small business owners make a lot of money, some break even while some go out of business in the first few months. In the same vein, there are real estate agents who have been in the business for years and make hundreds of thousands of dollars on a yearly basis while some become real estate agents and stop within a couple of months because they don’t like it or that they are not making enough money.
Also you would have to consider that there are people like say retirees who get a license as an agent and may sell about 1 or 2 houses in 6 months. These categories of individuals may not be bothered by this low income because they are not strictly in it for the money. Another factor that has to be considered is time. Usually people who have been real estate agents for a long time with contentious effort will definitely earn higher on a consistent basis when compared to a newbie. This is because they have more experience and they have had time to accumulate a larger client base. This just goes to show that almost anyone who says that he or she made hundreds of thousands in his first year is either extremely lucky or is most probably not telling the truth.