December 18, 2018
As director of the Garden State Real Estate Academy, I often look out at the students studying for their New Jersey real estate license and silently wonder, “Who among you will be future superstars, and who will be out of the business in six months?”
I really hope every one of those students ends up in the former category!
Why are you here?
On the first day of their real estate school, when we ask them why they want to become real estate agents, many of them say that “making money” is a big reason. Yet when we get to the part of the course where they have to calculate some math questions using commission as the subject, they really don’t know how Realtors® are compensated.
Firstly, the vast majority of real estate agents are independent contractors. That means they are responsible for paying all their own expenses, from business cards to marketing costs to income taxes to health insurance. Simply put, if they don’t sell something, they won’t earn a dime.
There is no “standard” commission
Once you join a brokerage, the compensation plans are as varied as the brokers who will employ you. Start with the commission. All commissions are negotiable; there is no “standard” rate. To avoid any suggestion that I may be advising otherwise, let me use a ridiculous number: 10 percent. Let’s assume Amy Agent works for ABC Realty, and she lists a house at the commission rate of 10%. Ron Realtor® works for XYZ Realty, and he shows his buyer several homes, eventually putting in an offer on their behalf for Amy’s listing.
They go to contract, and while Amy has already spent dozens (or hundreds) of hours marketing her listing, Ron now also springs into action as he guides his buyers through roughly 60 different steps that must be taken to get to settlement (with Amy going through a similar process as the seller’s representative.}
They go to closing, and everybody is happy as the buyers get the keys to their new home and the seller gets (hopefully!) a nice check for the equity in their former house. A real estate agent and her seller client decide what percentage of the total commission will be shared with the buyer’s broker, but it is traditionally about 50%. So if the sale was for $200,000, Amy would go back to her office with a check for the listing half–$10,000, while Ron goes back to his company with a similar amount.
When Amy and Ron joined their companies, they were offered “commission split” arrangements. Many brokers tell brand new agents they will start at a 50% commission split, an amount that will increase as the agent’s production goes up.
Let’s assume Amy is a very experienced agent on a 65% commission split, while Ron is new and has a 50% split. Amy’s broker will thus pay her $6,500 while Ron will only earn $5,000. The part the broker keeps is called “company dollar,” and goes to help pay for the company’s operating expenses.
How much can I earn?
How high can your commission split go, and what are the benchmarks you need to hit to reach each higher level? Some brokers are totally transparent and will reveal their entire commission plan while others will look at you as if you have asked for the nuclear codes because they only give out higher splits if they absolutely must!
So how much can a real estate agent make? Many of them join a firm with little training, mentoring or coaching and drop out a few months later, having earned nothing. But an agent who sells $2 million in her first year, $3 million in the second year and $5 million in her third year can easily earn $30,000-39,000 in year one, building up to $75,000-$105,000 in the fifth year.
If YOU have questions about a career in real estate call us at 609.923.0590 for a free consultation, or check out our website at www.GSREacademy.com for details of our upcoming South Jersey real estate licensing classes.
David C. Forward is a licensed real estate broker and instructor and was first licensed as a Realtor® 30 years ago. He is School Director of Garden Real Estate Academy, has won numerous awards for real estate sales, is a much-requested public speaker who has addressed audiences on six continents and is the author of 13 books. David can be reached at David@GSREacademy.com