Many people think that becoming a realtor is an easy way to make extra income or choose to transition full time into this career for the freedom it provides. After all, pre-licensing education and much of the work itself can take place on weekends, in your free time, and at your own pace. But what is the financial reality of a career–part or full time–in real estate?
The average realtor sells around 12 homes in the United States each year. This may be a surprisingly low number, but the truth is, there are several factors that account for this figure. Despite this low number, more and more people are trying their hand in the real estate industry.
In this article, we will take a look at the real estate industry, how realtors make their money, what’s behind this “average houses sold” number, and how it is determined. We will also briefly examine why so many people are entering this industry. If you have ever thought of joining the thousands of realtors in the United States and take a chance in the market, or you are just curious about the industry, read on.
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Defining Terms
Before we jump into how many houses the average realtor sells each year, we need to understand a couple of important terms.
Real estate agents and realtors are thought of interchangeably, however technically, they are not the same thing. A real estate agent is a person who represents sellers and buyers, listing and marketing properties for the former and identifying potential properties for the latter.
After completing all the necessary education and real estate exams to earn their license, agents facilitate the buying and selling of properties.
The term realtor, on the other hand, refers to any number of real estate professionals that are members of the National Association of Realtors (NAR) and swear to abide by the association’s standards and live up to its code of ethics. Agents, brokers, and appraisers are all considered realtors if they are members of the NRA.
For our purposes, since real estate agents that are members of the NAR are the focus of the article, I will continue to use the terms interchangeably.
An Average Year
So, the average realtor in the United States sells 12 houses per year. To understand how I came to this figure, we have to take a closer look at how real estate agents are paid, as well as a few important statistics from the market.
Paid on Commission
Real estate agents are almost exclusively paid based on the commission of the houses they sell. This means there is no set salary and no guarantee of a wage. Potentially, a realtor can work long hours for weeks on end and see no money for their efforts, making for a notoriously uneven income stream.
It is also essential to understand that agents work for brokers or agencies that take a percentage of their commission. Let’s take a look at some example figures to get an idea of how an agent’s earnings breakdown.
Let’s say a sales agent takes a listing on a $200,000 property with a 6% commission rate (an industry-standard); if the house sells for the asking price, the commission will be $12,000.
However, the agent isn’t the only one waiting in line for this payout. The agent’s broker, the buyer’s agent, and the buyer’s agent’s broker will all split this commission at predetermined percentages.
The sales agent and buyer’s agent will divide the initial $12,000 down the middle: $6,000 and $6,000. The sales agent’s broker will then take their cut; often a 60/40 split with the agent receiving $3,600 and the broker $2,400.
The commission breakdown would look like this:
- Sales Agent: $3,600
- Sales Broker: $2,400
- Buyer’s Agent: $3,600
- Buyer’s Broker: $2,400
In the United States, the average home costs around $240,000, and the median salary of a real estate agent is just over $50,000.
So, if a real estate agent is selling average priced homes, and following the method for distributing commissions that I previously outlined, they would need to sell 12 homes to reach the median salary.
An Imperfect Formula
The trouble with determining the number of houses that the average realtor sells each year is that, while they are useful, statistics can often be misleading, especially in such a varied data pool as the American housing market.
Housing prices vary drastically from one city to the next, which can skew the reality behind these figures. For example, a real estate agent working in an affluent area like Los Angeles very well may only need to sell two houses in a year to reach the median salary in the industry.
Alternatively, an agent in a rural area with significantly lower property values might have to close 20 transactions to reach this figure.
This median salary is useful for gaining a big-picture understanding of the industry but far less useful in terms of the hours and effort necessary to be a successful real estate agent. With such massive differences in housing prices around the country, the experiences of individual realtors in different regions can vary significantly.
A Growing Industry
Easy Entry
One reason that so many people try their hand in the real estate business is because of the ease with which they can enter the industry. No college degree is required, and there are a variety of different options for receiving accreditation.
Some states like Michigan require as little as 40 hours of education, while others (California) require around 100 hours. There are also several different options available, including live online classrooms and on-demand courses that allow you to move at your own pace.
Courses usually cost between $800 and $1000, making them within many individual’s budgets. Acquiring your real estate license is also fairly reasonably priced.
The flexibility of the profession is also a major draw for potential agents. While it is true that you don’t get paid until you close, you are also free to devote as much or as little time to your work as you please.
As I mentioned previously, the next step that many agents choose to take is joining the National Association of Realtors. If your broker joins the NAR, you, as an agent, are then able to join and take advantage of the resources that this group provides. Yearly dues provide access to a wealth of knowledge and experience for any real estate agent that joins the NAR.
Hidden Costs
While the startup costs to begin your career in real estate are relatively low, it is important to understand that most agents will have to be able to financially support themselves in much the same way as a new business owner.
Oftentimes, none of your marketing and external costs will be covered by a broker or agency. You will be expected to pay for signage, gas, and any other expenses you need to close a deal on your own, and then still pay out a significant portion of your commission to a third party. Without a plan and a budget, new agents can actually end up losing money on a deal.
Is a Career in Real Estate Right for You?
As with all jobs in sales, to be a successful real estate agent, you have to be able to close a deal. Despite the growing number of people entering the industry, there is still money to be made selling houses; however, it is important to understand your local market and the amount of time and effort that will be required to make ends meet in this industry.
Conclusion
Real estate is an exciting field, but looking at “average” figures and statistics on potential income can often be misleading. Just like all big decisions in life, pursuing a career in real estate should be a decision carefully weighed and examined. Remember, what is average in one city may be unachievable in another, so do your research, plan a budget, and prepare to jump into the world of real estate.
