We all have our perceptions. How could we not? We’re human after all.
It’s long been my perception (and maybe yours) that real estate agents made very good money. After you read this article, you’ll learn the truth of the matter.
In fairness, some agents are compensated amazingly well. But agents aren’t paid a set salary, but rather are compensated based on their sales. Here’s a quick breakdown.
- A home seller pays a commission to both their listing agent and to the home buyer’s agent. The commission rate is usually applied to the sales price of the home but by law everything can be negotiated.
- Commissions aren’t paid to the agent directly, but to their broker. The broker then “splits” the commission with the agent. A split can be anything that the agent and his or her broker have agreed upon. New agents often start with a 50/50 split, while more experienced agents can receive up to an 80/20 split.
- What remains is the agent’s gross income from which taxes and expenses will be removed. Some expenses are mandatory, such as association dues, Web site fees, and required errors & omissions insurance. Other expenses are optional, such as marketing and supplies costs.
That is the basic scenario, but there are other payment systems for real estate professionals as well.
So let’s look at how real estate agents in Louisville did in 2010. All data comes from the Greater Louisville Association of Realtors Web site. (Data is deemed accurate but not guaranteed.)
Louisville Real Estate Agent Salary Data
Once non-member sales volume is removed, all the remaining 2,737 Louisville agents accounted for a sales volume of $3,840,739,199 in 2010. That amounts to an average of $1,403,266 in sales volume per agent.
Next, we’ll have to make some assumptions about how the sales volume is turned into the real estate agent’s gross income.
The amount of commission per transaction can be anything. But the most frequently used is 3 percent, so let’s use that. Next, we’ll guesstimate the agent/broker split. I’ve decided to use 65 percent because it’s evenly between the low of 50 percent and the high of 80 percent. In truth, each agent has their own agreed upon split with their broker and that information is certainly not public.
Using these numbers, we can estimate that the average real estate agent in Louisville made $27,364 before taxes and expenses. I do not have data on how many agents or which agents are part-time (which lowers these numbers), but I’m guessing that this compensation is less than you expected.
Making the Big Bucks in Real Estate
When I set forth to tackle this data, I also wanted to know how much business broke down between the Top 20 percent, Top 10 percent and Top 5 percent of agents. As you can see from the charts below, it’s a very large portion.
This was pretty close to my estimate before I compiled the data. That’s 274 agents accounting for close to half of all sales.
After seeing the other two charts, this one seems just about right.
One last piece of data. While the average gross income for a Louisville real estate agent in 2011 was $27,364, the median income among Louisville agents was much lower at $12,825. This goes to show just how much higher incomes of the top producers affect the average.