Realtor Commissions: Not What You Think

How much does your real estate agent really earn?There's this perception out there that real estate agents are making money hand over fist.

It's understandable. Consider the average seller's experience: He might speak to the real estate agent a couple of times on the phone; then meet him or her in person at the initial listing presentation, when the real estate agent gets the listing; then have a few more phone calls over the next couple of months. And the next time he sees his agent, it's at the closing table and she's walking away with a check for tens of thousands of dollars. Plus, the real estate agent is usually dressed well, drives a nice car, and seems to be the picture of success.

If you don't see the actual day-to-day work of a real estate agent, and don't see all of the work they end up doing for no pay (and why would you?) then it's perfectly understandable why so many consumers think that agents are overpaid and do no work for the fat paychecks.

The reality is -- as many real estate agents will tell you if you ask -- that most real estate agents work extremely long hours for nothing, and end up closer to the poorhouse than their wheels and threads might suggest. As salespeople, their professional appearance is important, so they invest in looking like a million bucks.

The truth is, the job just doesn't pay that well. The 2009 Member Profile from the National Association of Realtors tells us that the median gross income of a Realtor was only $36,700 in 2008. But that alone doesn't tell the story.

The actual breakdown of the data is as follows:

1.1: Realtor Gross Income

Less than $10,00022%
$10,000 to $24,99917%
$25,000 to $34,99910%
$35,000 to $49,99913%
$50,000 to $74,99913%
$75,000 to $99,9999%
$100,000 to $149,9998%
$150,000 to $199,9993%
$200,000 to $249,9992%
$250,000 or more3%

Somewhat more than 62 percent of Realtors earned less than the median household income of $52,029 for 2008. That's almost two out of three falling below the median. Furthermore, because each real estate agent often functions as his or her own business in many respects, the net income figures at the high end are dramatically different from the gross income figures:

1.2: Realtor Net Income

Less than $10,00033%
$10,000 to $24,99919%
$25,000 to $34,99912%
$35,000 to $49,99912%
$50,000 to $74,99910%
$75,000 to $99,9996%
$100,000 to $149,9994%
$150,000 to $199,9991%
$200,000 to $249,9991%
$250,000 or more1%

As you can see, the six-figure earners from 1.1 go from 16 percent of the total to only 7 percent, reflecting the expenses required to be running a real estate business. Meanwhile, the lowest bracket -- those earning less than $10,000 per year -- grows by a whopping 50 percent, from 22 percent of the total to 33 percent of the total. Since at the lower end of the income spectrum, taxes are nonexistent, the gap between gross and net incomes is explained almost entirely by business expenses: dues, fees, marketing expenses, etc.

I know none of this makes a difference when you're doing a short sale on your own home that you bought for $450,000 and selling for $300,000, and you watch the real estate agents involved take $15,000 with them. And depending on the real estate agent you worked with, maybe you have reason to believe that she didn't do enough to deserve such a payday, or maybe you know that she worked extremely hard for every dime.

But at the very least, understand that most of those well-dressed, well-coiffed, success-oozing people are hardly getting rich off of your house. Fair or unfair, real estate brokerage is one of the toughest businesses in which to make a living.

That's one thing real estate agents would like you to know about their jobs.

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