How Much Does A Realtor Make
In our last article, we showed you how much a realtor costs. This time, we'll show you a realtor's expenses and give you an example of a realtor’s yearly salary - a realtor in the Nashville, middle Tennessee area.
Let's use our example from the previous article:
Sarah is an agent affiliated with ABC Realty.
She helps her client buy a home for $300,000
ABC Realty receives $9,000
Sarah has a 70/30 split with ABC Realty, so she gets a check for $6300. This is the amount she will pay taxes on, minus expenses.
So, Sarah has received a check from ABC Realty for $6300. She immediately deposits 25% in her business savings account for taxes leaving her with $4725.
A new agent will spend, at least, $550 to obtain their license. It depends on the cost of the course and how you take it.. The only part of this that repeats is an $80 fee every 2 years to renew a license.
Real estate agents are required to attend 16 hours of continuing education every 2 years before a license renewal will be granted. These classes can generally be purchased as online courses for $30 per 3 hour course. This comes out to roughly $160 or so depending on the courses taken.
In the Nashville area, agent access to the MLS (Multiple Listing Service) is restricted to members of NAR (National Association of Realtors). The cost is roughly $511 per year to be a member. It costs an additional $480 per year for access to the Realtracs MLS.
We carry E&O insurance (Errors & Omissions), $220 every 2 years.
When you hang your license with a brokerage, you will pay certain fees, as well. Hotel fees, copy fees, transaction fees, and on and on. It’s pretty standard to pay a total of about $85/month or $1020/year.
Driving clients around can take hours, days, even months. Gas money can be a substantial expense. Sarah spent an average amount of time driving her clients around and showing them houses over a few different days. She spent $40 on gas.
In order to remain organized and efficient, realtors need to have CRM (Customer Relationship Manager) software. Some brokers provide this at a discount and some do not. It's common to pay $200-$500/month for CRM software.
Email is a big part of a real estate agents business both during transactions and for marketing. Dot Loop is a popular application that allows digital signing and archival of transaction documents. This is a tremendous benefit for clients and agents. Some brokers provide this for agents, but it's expensive, if not.
Video email software has many features that make it very valuable to agents and helps set them apart. It is normally $600-$1000/year.
One of the largest expensive a successful realtor has is advertising. Whatever form it takes, agents can spend thousands and thousands every year on advertising.
Some agents purchase leads from different sources such as Zillow and Realtor.com. This is a VERY expensive service that can cost thousands per month and usually ends in an agent pestering people to death or wasting their money on fake phone numbers. (we have never purchased leads and never will).
The amount of time and effort an agent spends working for a client can vary widely. We've spent 120 hours for a $1700 commission and 50 hours for a $7000 commission.
Paper work takes up the most of our time. We also spend time:
creating content (our monthly print letter, videos, articles like this, and other timely, informative real estate and general home content)
searching for properties that fit our client's needs
coordinating each party during a transaction
staying current on our area
connecting with the community
creating marketing content for our home listings
Some extra listing-only expenses
When an agent lists a home, there are several other expenses involved. A realtor will need to prepare for any open houses they host. This can include printing listing information flyers, business cards, flowers and snacks for the open house, and advertising. An average open house can cost $50 and up.
Every agent needs signs. You can pay anywhere from $20 for a cheap, generic sign to $150 for a custom sign with a nice post. Sarah is middle of the road and pays $60 for each sign with her own information on it.
Our listing strategy includes targeted online ads. We will spend between $50-$100, and up, running ads targeted in the area around the home to drive interest and traffic.
We also hire a staging expert for our clients, in some cases. This can cost around $250-350.
Assuming Sarah has one closing per month averaging $300,000, her brokerage supplies Dot Loop and CRM software, she doesn't purchase any leads, and only works with 12 buyers (no sellers which incur much higher costs), here is her income:
Gross 3% commission: $108,000
Sarah's split of the gross commission: $75,600
After tax commission: $56,700
License renewal: -$40
NAR & MLS dues: -$991
Continuing ed: -$80
Brokerage fees: -$1020
Video email marketing software: -$600
Net income: $53,379
These numbers are a representation of a possible scenario. This assumes Sarah works solely with buyers, which is much more time consuming, but has lower cost. Closing 12 buyers in a year is very difficult for 80% of realtors. The median gross income for realtors was $40,000 in 2017. Sarah's gross was $75,600 which puts her way ahead of the curve and not typical. Most realtors struggle to find 3 or 4 clients per year.
If she worked with some sellers and the much more costly marketing expenses that go along with that, her salary would be cut much further.