Wondering how much real estate agents earn? We've got you covered!
We get asked what the average real estate agent salary is a lot, so let's talk a bit about how much real estate agents get paid. According to Payscale.com your average real estate agent in the US makes between $23,000 and $110,000 a year, and the highest performing agent in Massachusetts sold over $86 million in real estate last year according to MLS. It's probably safe to say that she (yes, she) was paid a lot more than $110,000 in commissions. So that's a pretty wide range of possible incomes!
Why so much variation in how much real estate agents make? The first big factor is that your average real estate agent is paid as a 1099 independent contractor, which means that they're only paid when they make a sale. When an agent makes a sale, they're paid a commission on the sale (usually somewhere between 4-6% of the property's sales price). What makes someone an independent contractor? From Wikipedia:
An independent contractor is a natural person, business, or corporation that provides goods or services to another entity under terms specified in a contract or within a verbal agreement. Unlike an employee, an independent contractor does not work regularly for an employer but works as and when required, during which time he or she may be subject to law of agency. Independent contractors are usually paid on a freelance basis. (Emphasis mine)
What this means in plain English is that real estate salespeople are treated as though they're self-employed; if they do well, they get paid well, and vice-versa. This means that the sky's the limit when it comes to your annual salary as a real estate agent, but it also means that your pay is proportionate to your effort. You can't just sit back, relax, and expect to cash a fat paycheck at the end of the week. Real estate sales is one of the few jobs where merit and hard work, rather than seniority and office politics, determines how much you get paid. Good news for those that are tired of the 9-5 grind, but you can't expect to cash an easy paycheck every week if you haven’t sold any homes!
Also, keep in mind that choosing to specialize in either sales or rentals will have a significant impact on how much money you make (if you're looking at getting into commercial real estate, that's a whole other ball game - this article by the National Association of Realtors is a great primer). Basically, you can break down the difference between specializing in sales and rentals like this: there's more money in selling homes, but renting apartments is easier to get started in.
Why is there more money in sales? It's because commissions in sales are significantly bigger than rental commissions – remember, sales agents get paid around 4-6% of a home's sales price, while rental agents usually take home about a month's rent as commission. This means that in Boston the average sales commission is around $27,500, versus approximately $2,900 for rentals. That's a huge gap!
But keep in mind that building up your business as a sales agent is a challenge. After all, for many people this is the largest purchase of their lives. You wouldn't choose just any old Realtor to help you make that purchase! By comparison, building rental business is a piece of cake: post a few listings on Craigslist, and you'll have more clients than you know what to do with. Starting with a mix of rentals and sales often makes a lot of sense for new agents, since jumping straight into sales can mean spending three to six months building up a client base without making any money!
So how much money can you expect to make in your first year as a newly licensed real estate agent? That depends on your market. According to Simply Hired, first year agents across the entire United States can expect to make an average income of $33,000 – not bad for an entry level position in an industry that, on average, scales up to a $110,000 salary. But keep in mind that the $33,000 figure is based on the national average. Boston, with it's expensive housing market and high real agent commissions, has a much higher average income for real estate agents: the average Boston real estate sales agent makes $65,600 per year, and the average Boston real estate broker makes $103,720 per year, according to the Boston Business Journal. That's almost double the national average real estate agent income according to Simply Hired! So you can expect to make decent money as a new agent in Boston (though the big bucks won't come until after you've built up your client base over a few years with hard work and good customer service).
The last factor that impacts sales agent incomes is the strength of the housing market in your State. All real estate is local, as the saying goes, and therefore your local real estate market will dictate your earning potential. Thankfully for Massachusetts real estate agents, our real estate market is doing incredibly well:
Eastern Massachusetts appears headed toward another housing boom that could turn out bigger than the last one as frenzied real estate activity near Boston begins to spread to outer suburbs and beyond, economists and housing specialists say.
The projection is based on trends in communities that historically have led the region’s housing market, particularly Cambridge. The red hot market there has already pushed the median price 30 percent above the pre-recession peak and housing specialists say it’s only a matter of time before other cities and towns follow.
Rental agents in the Boston area also have it good. Boston rents (and thus rental agent commissions) are very high compared to other cities, because Greater Boston rental inventories can't keep up with job and population growth:
[The] scarcity of apartments has helped drive Boston-area rents ever higher. The region's perennial desirability as an academic, tech and biotech hub has not helped matters: More and more people want to live here (despite the winters!) and the housing demand, for a variety of reasons (poor public policy, high construction costs, low-density land use for generations now), far outpaces the supply every year. The rental population in the region grew 23 percent.
Even the historic residential-building boom under way is unlikely to alleviate things for most tenants, at least not anytime soon. Perhaps in two or three years; but your next apartment hunt will surely confront this grim economic tableau of high demand and low supply. The two major reasons for this are that for-sale housing, particularly condos, remains astronomical by the standards of almost any American region besides, again, New York and San Francisco. Also, much of the new rental development is at the higher-end (see graphic above about the affordability of newer units)...Whatever goes up tends to get snatched up and fast; and what's leftover is unaffordable for many.
Not the best news if you're looking for a new apartment, but that's very good news for Massachusetts real estate agent commission checks!
So to sum it up: if you're interested in getting your real estate license Massachusetts is a great place to get it, but expect to work hard if you want to make really good money (think six figures or more). If you're willing to put in the work, though, the sky is quite literally the limit!