The old adage goes, it you want to get rich, get into real estate. Glamorous TV shows follow house-flippers and realtors making hundred-thousand dollar profits, drinking unlimited brunch mimosas, and driving white-hot Ferraris.
With all this eye-candy, it's easy for people to dismiss the work of Realtors as lazy salespeople who spend their days walking through mansions by day and going to parties all night. With all that being considered, let's do a deep dive into what it costs to be a Realtor, how much money they make, and who is responsible for dishing out the dough.
How Much Does It Cost To Be a Realtor?
In order to use the moniker of REALTOR® you need to become a member of the National Association of REALTORS® which is a powerful organization of licensed real estate agents and brokers who abide by a strict Code of Ethics. REALTORS® must pay for classes and substantial monthly dues as well as reinstate their membership yearly. This is usually around $2,500 dollars.
Before you can even call yourself a REALTOR® you must first get your real estate license. The start-up fees to get your real estate licence also averages out to be about $3,000 in Nevada, including the cost and time of taking the required 120-hours of classes, State and National tests, and sign-on fees. Requirments and fees vary between states, so check with your local division if you're interested in becoming a real estate agent.
Once you're licensed, you need to join a brokerage. The brokerage will have monthly fees anywhere from one hundred to several hundred dollars a month, based on the support, network, and marketing they provide.
There is an exclusive MLS database privy only to Realtors, so listings can be seen only by other Realtors which requires you to take classes as well as pay to gain access. In order to keep your license, you're required to go through additional education every year to two years to maintain and prove your expertise.
You'll pay for classes, MLS access, insurance for your business, private insurance for yourself, payroll if you have an assistant, payroll to hire PR teams, payroll for media contractors, brokerage fees, and a transaction fee on every home you sell.
The most successful agents market themselves. This could be as simple as having printed handouts to elaborate PR sponsorships. As a starting agent in Las Vegas or Henderson, you should expect to spend no less than $500/month in marketing materials and travel.
Established agents spend tens of thousands of dollars per month in marketing themselves to potentially hundreds of thousands of dollars when marketing specific, luxury properties.
It costs money to make money, and that's never been truer in major cities. It's the cost of running your own business. So who feels pity for real estate agents? Likely very few, so let's move onto what you're probably here for.
How Much Do Realtors Actually Make?
The answer is a very unglamorous: it depends on individual contracts. All pricing is negotiable, and it's illegal to say otherwise. Each brokerages determines their own commission rates, but in an ideal situation, the commission on a single home sale is 6% -- being split evenly with 3% going to the Listing Agent and 3% to the Buyer's Agent. For the sake of a simple example, let's use 6% as a typical commission moving forward.
Usually when you see how much the commission is on reality TV shows, this huge hundred-thousand commission is the number they're referring to, so don't be fooled!
Of that 6%, each side walks with 3%. From there, you'll have a brokerage split. For every home sold, the proceeds are split between the agent and the brokerage. How much the split ends up being depends on your individual contract. It can be anywere from 50/50 for new agents to 90/10 for established, high-value agents in split-commission brokerages that provide things like marketing and CRM management up to 100% commission for certain brokerages that provide limited resources.
So let's say you sell a home for $400,000. If it's a 6% commission, it will be $24,000 in total commission where the Listing Agent and the Buyer's Agent each receive $12,000 to their brokerage.
From the $12,000 your brokerage receives, your brokerage split determines how much you get as an agent. Let's say you're a new agent so you receive a 50/50 split of $6000. You then have to pay your transaction fees, brokerage fees, and taxes so you'll probably walk with a little over $4,000. If the sale is a result of a referral from a different Realtor, you could have to pay a referral percentage and walk away with a little over $3,000. If you're lucky, it only took you a month to get. In some cases, it could be 6 months before you see a home sold, several years for luxury homes, and equally likely that the home doesn't sell at all depending on when your contract deadline with the seller comes up.
On the rental side of things, Realtors in Nevada are typically paid a flat fee of $300 for most properties. If you're searching for a rental and meet a Realtor working diligently for you, you should take note that this person is hardly getting paid if they spend any time searching on your behalf and showing you multiple properites. Keep that person in your contacts, because it shows they're a hard worker no matter the circumstance.
When you consider how long it takes you to get paid and the amount of work it takes to get a house sold, you could average out making $5 an hour.
Realtors will generally front all costs to marketing and selling a property. In this hot Seller's Market, some homes are only listed for a few days before accepting an offer, closing a sale within 30 days. The average home in Las Vegas is down to 40 days, turning a sale within 2 months. Homes over $550k are on market an average of 60 days while homes priced over $1 million in Southern Nevada stay on the market an average of 1 year (as of September 2020).
With all of these MLS-supplied statistics, it's fair to say that it takes at least 30 days before you're paid for your sale. And you better believe you're working for it.
What They Don't Show You
On the buyer's side you're organizing deadlines, inspections, appraisals, managing communication between your client's expectations, the listing agent on behalf of their client, contractors, financing, and escrow. On the seller's side you're cleaning, staging, taking photographs, running PR, and juggling the numerous offers coming in.
Sometimes a deal with fall through because the buyer decided to buy a motorcycle before his house closes and throws the whole deal out the window. Sometimes a seller who raises lemon trees from seeds rips out the entire garden to take with her, leaving the buyer who bought the house specifically for the lemon trees with the legal recourse to be smoothed over by the Realtors. Ask any Realtor what they're dealing with on a weekly basis, and you'll always hear something new.
Realtors don't typically have days off, but let's keep the hours general and say it's a 40-hour work week for 30 days. That's 160 hours to get that $4,000. Which comes out to $25/hour for selling that one $400,000 house, and that's only if it goes smoothly.
Now brokerage splits, fees, insurance, and taxes will vary. Incorporate into the fact that agents can sell more than one house a month can equal out to a pretty profit. But the amount of work and time it takes to sell a home surprises most people.
When your concept of what a Realtor does is primed by reality shows, people don't realize that an honest, organized, and shrewd negotiator spends hours behind the scenes running paperwork, handling contractors, and shouldering highly-sensitive legal work.
So who Pays The Commission?
The selling homeowner pays the commission for both the buyer and seller's agent. When agents meet people who want to list their house for sale, the main concerns the client is wondering about is "How much do I have to pay you and how much will I make?"
Giving 6% of a sale to a Realtor can feel like a steep and unnecessary amount of money if you're fixating on the number as a cost and not an investment. It's easy to think that extra $25,000 belongs in your pocket; after all, you're the one who lived and cared for the house. Those owners may go try the route of For-Sale-By-Owner (FSBO) or a "discount broker" who charges something like 1%.
What 89% of those FSBO find is that they are fully unprepared for the planning and logistics it takes to sell their home, typically selling their home for $80,000 less than if they had used a quality Realtor.
Even those who choose to use a 1% broker find they are doing much of the work, as most discount brokers only put your listing on the MLS. This provides you with a broader avenue for visibility, but homeowners are often still managing all the paperwork, marketing, home showings, scheduling, and buyer selection.
Using the original example of a $400,000 house, when you use a discount broker, you're essentially giving $4,000 only for your listing to be viewed on the MLS. That to me seems like a high fee for a single-avenue when you're still responsible for the rest of the work.
When you consider how much money it takes into marketing a home that will bring highly qualified buyers in addition to the time it takes for paperwork and market analysis paired with the legal and insurance complications, it's easy to realize that spending that extra $25,000 at the end of the sale is worth the extra $80,000 profit for yourself.
Given that the commission isn't paid unless the home is sold, allowing an agent to take on all the costs up front in order to make a commission at all makes a lot of sense and doesn't cost you anything while the work is being done.
Selling a home for top dollar includes professional photography, eye-scan metrics, color leveling, legal contracts, parcel mapping, city tax recording, staging, cleaning, scheduling time to let potential buyers view the home, insurance vulnerability into letting strangers into your home, time management, contract deadlines, pricepoint evaluation, marketing to multiple online platforms and managing those inquiries, negotiating, communicating with different personality types, weighing different but equal pros and cons, and coming to a decision that will contribute to and determine generational wealth.
As they say: it's a full time job.
Investing in real estate is the largest contributor for building wealth. It's typically not a one-and-done sale. It's about compounding your investment.
In order to build your wealth, you need to get into an investment mindset. It requires you to think about the amount of money it would take for the best return. Spending $1 that makes you $4 isn't the same thing as spending $1 for a small fry. Thinking of spending money as all equal spending will keep you small. Thinking of how your money can make more money provides unlimited potential for growth.
If you want to sell your house with the least amount of energy for the highest amount of profit, hire a professional. If you want to sell your house to begin investing in rental properties, hire a professional. If you're thinking of buying your first home to grow wealth for your children, hire a professional.
You'll thank yourself later.
Are you ready to sell your house?
Investing in real estate is an investment in your long-term wealth goals. Making sure you have the best professionals on your side will ensure you have all the tools you need to see your money grow.
If you're ready to take hold of your financial future through real estate Call Jessica Ream with Windermere Real Estate in Anthem Hills to have the highly qualified team of professionals managing your real estate goals in Las Vegas and Henderson, Nevada, USA.