Don, great question. I will take a stab at it, but as Tradelite has already said it varies greatly.
WARNING - MATH FOLLOWS SKIP DOWN FOR THE END RESULT!
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Assume: $1,600,000 sale; 6% commission. Two agents.
$96,000 total commission, $48,000 to each agent. (Note that few agents will ever see a commission that high; I know I have not!)
OFFICE/AGENT SPLIT:
$48,000 X 40% to 80% split with the office would be:
$19,200 to $38,400.
EXPENSES:
I had started to get into specifics, but it is so hard to quantify. Let me summarize by saying that 40-60% of most agents gross commission income is about right to go towards deductible expenses. Agents who make more have higher expenses (usually much more advertising, staff, etc.), and agents who make less still have a lot of fixed fees. Overall I have found it is 40-60% for expenses regardless of gross income. Advertising (huge expense), equipment (phone, cell phone, copy machine, computer, software, etc.), various real estate fees, business license fees, auto, extra insurance, supplies (those real estate forms are expensive!), continuing education, staff, referral fees, health insurance, office space, legal fees, accounting fees, and much, much more.
So...
$19,200 X 40% = $7,700 and $38,400 X 60% is $23,000 rounded net taxable income.
Taxes:
Almost 15% goes toward Social Security (double that of a regular employee), plus normal state & federal taxes that of course varies greatly by income and location. Assume SS/FED/STATE of 15+10+5 = 30% on the low side and 15+25+10 = 50% on the high side. (Yes, for self employed, a 50% or higher tax rate is common).
So, $7700 X 50% = $3900 and $23,000 X 70% = $16,100 net after taxes on the low and high side, respectively.
VACATION & RETIREMENT
Now we might deduct a few intangibles. In most jobs, the employee gets at least a 2 week paid vacation per year and some retirement benefit. A real estate agent, and most self employed, must cover this themselves. It is easily worth another 10-20% (I could argue more, but I want to be conservative and the reader should get the point).
So, $3900 X 70% = $2700 and $16,100 X 90% = $14,500.
Please check my math!
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The math challenged can now rejoin the discussion!
CONCLUSION:
The result is that out of that original $96,000 commission, the average agent would only see between $2700 (2.84%) and $14,500 (15.10%) after expenses, taxes, and reasonable donations to a vacation and retirement fund.
Keep in mind that this is for a very large commission that most agents will never see. The same percentages hold for the most part for lower amounts, so the commission on a $200K sale would be between $341 on the very low side, to $1812 on the very high side.
These numbers I believe are fairly accurate. I look forward to comments on it!
NOW FOR THE HARD STUFF
The hardest part to quantify I have saved for last. Maybe I should have quit where I was, because most who have never been in sales will not understand this. I know, I have explained it enough times to blank, uncomprehending eyes. For every hour spent on making a successful sale there are several hours wasted on potential sales that do not work out. It was 6 months before I actually earned my first commission, and that is not uncommon. 6 months with absolutely no pay and no benefits. I have seen several work longer and not make a sale. Most people simply will not be a success in real estate.
The concept of working but not getting paid is tough for most to really fathom. I think every agent has stories of working weeks with a "sure thing" client who ends up either not buying/selling, or worse, buying/selling with someone else. |
