Anyone who’s ever hired a real estate agent to help them buy or sell a house might wonder: How do agents get paid—and how much?
Being a real estate agent seemed like a glamorous and highly profitable job. I had visions of cashing huge checks as I brokered deals on gorgeous properties with clients who’d invite me onto their yacht to thank me for all my hard work.
The reality, I soon discovered, was way different from what I expected—and what many home buyers and sellers might envision, too.
The story of my first real estate commission
After graduating from college, I was soon introduced to an agent at a large real estate company who agreed to be my mentor. After shadowing this successful agent for a month, I set out to get my real estate license and started working there.
This is a lump sum, paid only when a home is sold. Important to note: It is not a set price, and it varies quite a bit per transaction. Most typically it hovers around 5% to 6% of the home price.
Given that your average home in San Francisco sells for around $1 million, a typical commission could amount to upwards of $50,000—which seems like a lot!
But I was soon in for a brutal reality check on how much work goes into that commission, and how it gets divvied up.
My first client
My first client was a tech industry worker from New Zealand. He’d been living in San Francisco for a few years and wanted to buy his first home.
Upon meeting this client at my office, it became obvious that he was extremely anxious and skittish. He knew nothing about home buying, and would constantly change his mind based on random news, his parents’ opinions, or his emotional state.
His anxiety levels were exacerbated by the fact that he was buying in a foreign country. Since his parents were involved in the deal, I had to deal with three stakeholders living on different continents.
Undaunted, I accompanied my client to numerous open houses during that initial weekend. For each property, I came equipped with meticulous documentation, which I’d memorized to perfection.
I had prepared to act like an objective market analyst; in reality, I spent most of my time serving as a chauffeur and a therapist.
We attended dozens of open houses and 19 private showings, and clocked hundreds of hours on calls discussing personal taxes, property taxes, closing costs, investment strategies—and his worsening anxiety.
As for me, without a base salary, it became difficult to survive in San Francisco. The rock bottom moment hit in the middle of a sweltering summer, when my car broke down as I was frantically trying to meet my client for a showing.
As an agent, losing your car is like losing a limb. I soldiered on and took a commuter train into the city. San Francisco’s hills look great on postcards, but not so much if you’re sprinting in a suit in 98-degree heat.
Miraculously, I made it to the property on time and began reviewing my prepared materials. I promptly received a text from the client, informing me that he couldn’t make the showing. That’s when I became acutely aware that all my work might amount to nothing.
Breaking down my commission
However, after six months of struggling, the client and I finally found a perfect place for his needs, and we closed the deal. For me, that finally meant it was payday! Here’s how the commission was broken down:
- The deal was a co-op purchase for $690,000.
- The full commission on this deal was negotiated to be 5% of the purchase price, a total of $34,500.
- The listing agent took half, or $17,250, and the other half went to the buyer’s brokerage.
- Since I had partnered with another buyer’s agent on this deal, I made 50% of the buyer’s side commission, which was worth $8,625.
While $8,625 might seem like a lot of money, I’d been dedicating about 20 hours per week to this sale for over six months, a total of 480 hours.
My return boiled down to less than $18 per hour. And that was before I gave the IRS my cut of the income. Ultimately, I was working for near minimum wage.
Doesn’t seem so glamorous anymore, does it?
The ugly truth about real estate agent commissions
What they don’t see is the grunt work that is required to make each deal close. They don’t experience the psychological toll of knowing that a deal could be canceled and that their months of work could amount to nothing.
But I stuck it out, and things did get better.
I learned how to work smart and automate as many processes as possible, because I knew that hard work alone wouldn’t result in victory.
By teaming up with the best agents in San Francisco and building my personal brand across social media channels, I was able to market over $20 million of real estate within my first year in the business, and marketed close to $100 million the next.
Ultimately, there is something magical about helping someone find their dream home. You’re not just moving someone into a house, you’re creating years of memories and experiences for this person and their loved ones. When a deal comes together, it’s immensely gratifying in ways that defy description.
Still, the next time you wonder “What am I paying this real estate agent a commission for, anyway?”, I hope you remember my story and give your agent the benefit of the doubt. You can assume that the answer to your question is: a whole lot.