Note: This post was originally published August 2, 2019. It has since been updated and republished. Also, fair warning: I used the words realtor and real estate agent interchangeably throughout.
There are a lot of misconceptions regarding how real estate commissions work.
These misconceptions often lead to sellers demanding their agent list their home for a lower or “discounted” commission rate.
Let me offer an example.
The benchmark price for a detached Fort Erie home (the market where I am most active) as of January 31, 2023, was $501,700.
Let’s call it $500,000 just to make the math easy.
Assuming the sellers of this detached home agree to pay a 5 percent commission, they might be thinking that their agent will take home $25,000 once the sold sign goes up. And, perhaps rightly so, the sellers may feel this is an exorbitant amount to pay in exchange for the services offered by their realtor.
After all, the belief held by many is that real estate agents (or real a-waste agents, as I’ve seen us crudely labeled on Facebook) earn obscene amounts of cash for doing little more than hammering a sold sign into the front lawn.
But that’s not how this works.Do real estate agents earn obscene amounts of cash?Click To Tweet
The truth is that many — most, in fact! — real estate agents earn roughly the equivalent of minimum wage or less.
Let me explain.
For Every Sale, There Are Two Ends
Every real estate transaction is comprised of two “ends”.
There’s a buyer end and a seller end.
The commission paid by the seller, typically in the range of 5 percent of the final purchase price, is usually split evenly between the two ends. In other words, half goes to the listing realtor and half goes to the buyer’s realtor.
In the example above, that works out to $12,500 each.
That’s still not bad, right?
I mean, if your average Niagara realtor is closing 50+ ends a year, that would work out to more than half a million dollars!
But not so fast...
Let’s review how many ends the average Niagara realtor actually closes in any given year.
According to internal sources at my brokerage, the average Niagara realtor closed just 5.1 ends in 2022.The average Niagara realtor closed just 5.1 ends in 2022.Click To Tweet
Yes, you read that right.
There were 1,500+ active realtors in Niagara last year, and they averaged just five ends (rounding down) each.
- ~70 percent closed five or fewer ends.
- ~57 percent closed three or fewer ends.
If you think that sounds low, you are absolutely right.
Meet Chad, the Average Niagara Realtor
Let me introduce you to Chad, the average Niagara realtor.
You can tell Chad means business. He’s even got a handy-dandy headset on for all those cold calls he plans to make.
Chad incurred a variety of fixed expenses in 2022 in order to legally trade in real estate in Ontario. Here is a look at how those numbers broke down:
- $410 // annual affiliation fee (brokerage)
- $12,156 // monthly desk fees (brokerage)
- $1,702 // dues owed to the Niagara Association of Realtors
- $908 // dues owed to the Real Estate Council of Ontario
In other words, Chad started out 2022 already $15,176 in the hole. And even though he pursued some lofty sales goals, his performance in 2022 was nothing more than typical for the average Niagara realtor.
Put another way?
Chad Sold Only Five Homes Last Year
Let’s say that Chad listed five Fort Erie homes in 2022.
- All five of his listings sold.
- All five of his seller-clients agreed to pay a 5 percent commission.
- The average sale price of each home that Chad sold was $500,000.
- Chad did not double-end any of his sales, meaning in each case he had to split the commission with a buyer agent.
- And Chad did not successfully help any buyer-clients purchase a home last year (no buyer “ends”), despite researching and showing dozens of properties.
Those factors considered, here is a look at Chad’s gross commissions for 2022:
- $62,500 // 2.5% * 5 ends * $500,000
But then he had to split his gross commissions with his brokerage.
Desk fees and commission splits vary from one brokerage to the next but, no matter where Chad works, he will inevitably have to give up a portion of his earnings to his employer.
In many cases, agents will join a team, in which case they will be paying a portion of their commission not only to their brokerage, but to their team leader, as well.
For the sake of this example, let’s assume that Chad is a solo agent (not on a team) and that his commission split is 95/5:
- $3,125 // commission split
Which means his actual earnings were closer to:
- $59,375 // net commissions
After backing out his fixed expenses of $15,176, noted above, Chad was left with:
- $44,199 // after fixed expenses
Then, of course, each of those sales he made in 2022 required some upfront investment of capital. If Chad is anything like me, he spent an average per sold listing of:
- $144 // digital advertising
- $250 // professional photography
- $224 // newspaper advertising
- $95 // print materials
- $94 // misc. listing expenses
- $190 // professional cleaning
- $263 // closing gifts
That’s a total expenditure of $1,260 for each end he closed, or a total of $6,300 for all five ends in 2022. That means his profit for the year was closer to:
- $37,899 // profit
Well, sort of…
Aside from fixed expenses and listing expenses, I could also point to numerous incidental expenses that Chad incurred last year. If his profit and loss statement looked anything like mine, Chad may have spent as much as:
- $2,487 // fuel while driving for work
- $1,908 // commercial auto insurance
- $1,583 // SentriLock lock boxes
- $838 // for sale signs and frames
Not to mention any additional funds he may have put towards general advertising, conferences, accounting, that fancy headset he’s wearing, and so forth.
All things considered, let’s assume Chad’s taxable earnings were closer to $30,000 in 2022.
And assuming he worked roughly 35 hours a week, which is probably a fairly low estimate, that means he ended up earning just over $16 an hour.
That’s not much more than minimum wage, and most minimum wage employees aren’t at risk of being sued the way that realtors are. Yes, even an honest mistake in paperwork or an innocent misrepresentation (something honestly believed to be true but later discovered to be false) could open Chad up to litigation.
Am I Chad?
No, I am not.
I consistently outperform the Niagara averages, as do most of the agents who work at my brokerage.
For context, the average RE/MAX Niagara agent closed 17.95 ends in 2018.
In other words, with hard work, effective time management, and persistence, it’s possible to earn a significant income in real estate.
No one, least of all me, is denying that.
But to pretend that we, as realtors, are a bunch of selfish, greedy pigs is absurd.
A career in real estate means long hours, constant rejection, inherent risk, rampant competition, regular scrutiny, severe regulation, loss of privacy (in a small town), and periods of inconsistent income.
As I pointed out above, around 70 percent of Niagara realtors earned roughly the same or less than Chad last year.
Many realtors in Niagara — all of Ontario, for that matter! — break even or lose money, and a staggering number of new realtors choose not to renew their registration at the end of their provisional period (the first two years).
Am I complaining about any of this? Absolutely not. I love my job. I love all of its challenges and rewards. I love the people of this town, too, and I love engaging with my local community. I love helping others achieve the dream of home ownership. I really, truly do.But will I take a pay cut in order to win your business?Click To Tweet
But will I take a pay cut in order to win your business?
Not a chance.
I’m worth every penny and more.
And no part of me feels greedy for saying so.
Not one little bit.
Published February 23, 2023
Brent is a sales representative with RE/MAX Niagara Realty Ltd., Brokerage. He’s the host of The Fort Erie Podcast and proud to call Fort Erie his home.