In 1990
after my first 9 months as a real estate agent I was awarded my first
multi-million dollar production plaque (2 million). The next year
I would be awarded a plaque for 4 1/2 million dollars in production and
was one of the top 7 producers in this area. All this is to
preface the following on income. At the time I received my plaque
for 4.5 million, I was one of 750 local agents in 1991. Of the
750 agents approximately 150 received an award for production of a
million dollars or more. This meant that 600 agents had
production of less then one
million. An update to 2005 shows the same relationship. The
150 top agents now average above 2 million dollars in sales while 700+
agents sell less then 2 million dollars.
So if we were to analyze what a person who sells 2 million dollars in production, can expect, here are the numbers.
A sale is defined as one side of a deal
which on the average pays a commission of 3% Therefore $2,000,000
times 3 % would equal $60,000 total commissions. But, this
has to be split with the agent's company. Split agents generally
receive 55% to 70% of their commissions. If we take an average of
60% we now have a total income of $36,000. If we forget
about costs* for the moment the next major deduction is for taxes. If your income is in the low 15% tax bracket and you contribute 12.4% for Social Security
tax since you are now self employed (you must pay yours and your employer's side of the tax) plus Medicare tax (both sides) of 2.9%. Then throw in some State income tax (remember nothing has been withheld)
it would be reasonable to figure over 1/3 of your income would be
required to pay your tax obligations unless you were in a higher
tax bracket. If we had no other costs*
then the maximum income one could expect from $2,000,000 in sales
would be $24,000 annual or approximately $460
per week. Now remember only the top150 agents had 2 million
dollars or more in sales meaning the greater number of agents (700 out
of 850) work for far less. And the benefits are those determined
by your employer - self employed means you are the employer so medical
coverage, time off, vacations etc. are at your expense.
"To consider real estate to be a money making occupation you must determine to be one of the top agents to even make it a go."
*Now about those "other costs"
figure in a cell phone or at least a pager (not for a top agent
though) car expenses including lease payments, gas and auto
insurance, Errors and Omissions Insurance (for real estate law suite protection), dues and fees
which vary from $150 to $650 annually each, Multiple Listing Service
fee, annual business license fees and state license fees, and the major
cost of monthly advertising, business cards, name promotion and
possibly even the cost for a
good web site. One good thing though, these cost reduce your tax
exposure so a $1 spent is a dollar that is not taxed as income. I
call that - "savings!"
Faced with taxes and costs the real estate
profession affords only the top agents with a reasonable income.
And although the commission check may look nice when leaving a
closing it is quickly realized that the money is anything but the
agents.
|