Low entry barriers and high earning potentials resulted in a number of people becoming real estate agents. However, the slump in the market has changed the equation.
Generally, real estate agents work for real estate brokers, who act as intermediaries between buyers and sellers of real estate. Real estate, that includes land and all permanent fixtures on the land, can be classified as residential or commercial.
The classification depends on whether or not the property generates income. Commercial properties are income generating properties, while residential ones are meant for occupation by the owner as his primary residence.
In order to become a real estate agent, a person needs to be at least 18 years of age and should have graduated from high school. Moreover, he needs to complete 75-80 hours of course work and obtain a license. He can act as buyer’s or seller’s agent.
Agents Dealing in Residential Properties
The price of real estate is affected by both local and economic factors. When the market is booming, an agent can make oodles of money.
A seller’s agent makes money through commissions, which are determined as a percentage of the sales price. So when the prices appreciate, the seller’s agent stands to gain in the form of huge commissions. Since the current market is not a sellers market, it would behoove us to take a look at the payment structure for a buyer’s agent.
A buyer’s agent is entrusted with the task of scouting for suitable properties, either residential or commercial, and getting a good deal for the buyer. A good deal would mean a low purchase price.
The current market is a buyers market, since property prices are at an all time low. A buyer’s agent is generally paid a percentage of the purchase price or listed price as commission. Sometimes in addition to receiving a percentage of the purchase price, he is also entitled to a percentage of the difference between the listed price and the purchase price.
In addition to this, he is paid an hourly fee and promotional expenses. It’s evident that a seller’s agent earns much more than a buyer’s agent, since the latter will stand to lose in the event of the buyer getting a good deal.
Agents Dealing in Commercial Properties
These agents earn commission on the sale and purchase of land and commercial real estate. The commissions, for both residential and commercial real estate, are negotiated in a similar manner.
In case of rental apartments, the agent is paid a rental commission by the real estate company responsible for renting out homes and apartments.
Broker Price Opinion (BPO)
Agents can also earn money by offering their opinion on the worth of the property to lending institutions. A fixed fee is paid for it.
Other Ways of Earning
Some states allow agents to appraise properties. Here, they earn an appraisal fee. Experienced professionals can also earn by conducting seminars and training sessions. When times are good, salaries can be as high as $100,000. In fact, a really good agent can earn more than $151,000 a year. However, the median pay for these professionals in 2017 was $45,990.
Basis on Which They Make Money
In case of residential properties, an oversupply has resulted in pulling down the prices of homes. Many people are preferring renting to owning, since they are unable to afford the mortgage payments.
In this situation, commercial real estate agents can earn commissions by bringing together landlords and tenants. It is a good time for business owners to invest in commercial properties, since they can acquire property at a really cheaper price.
However, buying a commercial property is much more complicated than investing in a residential property. This is because, unlike residential deals, commercial ones do not require mandatory disclosures. Hence, a commercial real estate agent’s services are indispensable.
Thus, a commercial type agent can hope to earn much more than an agent specializing in residential properties. However, the deals are generally complicated and time-consuming and involve huge sums of money. Consequently, a commercial type agent is paid more, but at less frequent intervals.