I hear this all the time.
If you’ve ever seen Million Dollar Listing New York, you’d think all we have to do is put out some champagne, charm someone with enough dough to sign on a dotted line, and we’re instantly rich and famous.
On the show, when I make a deal, two captions ding onto the screen:
→ “Sale price: $10 million”
→ “KJ’s Commission: $250,000”
Boom! I’ve made a quarter of a mil in one (ahem) healthy deal. Not bad, right?
These taglines make for scintillating television entertainment that would have you thinking that real estate agents only have to sell a few properties a year to rake in seven figures. However, they only reflect the top line. From there, it’s a rocky tumble of splits, payouts, and expenses to the bottom line.
Here are the real numbers you can expect.
If you are a new real estate agent or are wanting to become one, the first thing you need to know is that you share your commission. How much you share and with whom varies, but you can assume some generalities. The pie pieces that get distributed are referred to as the “splits.”
For clarity’s sake, I’ll use an example to take you through the calculations.
→ Let’s start with a $1 million sale.
Split #1 – The other agent
The average commission on a home sale is 2.5%. This assumes you are representing one side only — buyer or seller. If you’re representing both sides of the transaction, you get that full 5%, or whatever percentage you’ve negotiated with the buyer and seller.
→ Your commission (2.5% of $1 mil) = $25,000 Woot woot!
Split #2 – The brokerage
If you are a new agent, the first cut to your commission is what you give back to your company, also known as “the house.” Typically the house gets at least 50 percent. This might sound like a lot, but really you’re paying them for finding leads, marketing, and listing the properties. Essentially, you’re renting the company’s reputation, brand, and credibility while you make a name for yourself in the real estate world.
→ Your commission, after 50% goes to the house = $12,500
Congrats! You’ve made $12,500 on your first sale!
But wait, there’s more.
So far we’ve only talked about the splits. Now come the additional expenses — the ones you did not already pay to the house. Not all of these come out directly from your first check, but they still come out of your pocket. So, it’s a few more deductions until we get to your actual moolah, the net income from a sale.
Other expenses are not limited to, but can include:
- Lead generation
- Administrative costs
In New York City, the splits tend to be more generous because the other expenses are higher than in most of the country — not to mention the cost of living!
→ Your commission, minus additional expenses = $11,000
Don’t forget Uncle Sam
You didn’t think you were gonna take home $11,000 scott-free from taxes, did you?
Figure on another 30-50% shared with the government. In NYC, try to grin and bear it as you hand over at least half of what you thought you just earned.
→ The money you take home after taxes in NYC = $5,500
And then your business advisor would tell you to invest another 30-50% back into the business.
→ The money you get to do whatever the hell you want with, after you invest back into your business = $2,750
Selling Real Estate is a Real Hustle
That should be the real title of this post. If you want to make good money in this business, you can absolutely do it. But you will also put in real serious work. That is why the ramp up is so important.
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