How Realtors Make Money

agent hacking Jul 09, 2021

Believe it or not, many people don't fully understand how Realtors make money.

If that's you, I want to explain it in this post.

I think understanding how Realtors make money will show you why I recommend becoming a Realtor (or having your spouse become one) as part of your tentmaking strategy.

Realtors make money, not based on the time they put in, but based on the value of the houses that they sell/buy for their clients. Meaning, in most cases, Realtors are not paid hourly or by salary, but rather as a percentage of the sales price of the house.

What's great about this is that you can make extra money with minimal time investment, which is exactly what many of us in ministry are looking for. For example, I put together a free guide on how you can make an extra $10,000 each year with approximately 10 hours of work using a real estate license. You can download it here.

Let me give a specific example of how Realtors make money using a hypothetical transaction.

The median home price in the US is approximately $300,000.

While commission percentages can vary, in many markets, 6% is a standard commission that a seller pays to sell their home.

The 6% is split between the selling broker & the buying broker. Both sides get 3%, unless negotiated differently. Sometimes a listing agent may say they'll list it for 5%, reducing their broker’s commission by 1%. But 6% total & 3% per side is fairly standard.

Given this information, if you list & sell a home for $300,000 (or if you represent a buyer who buys the home), your broker will likely make 3% of $300,000 or $9,000. Then you & the broker work out how much each of you get.

My wife has worked with a broker that did a 50/50 split, meaning my wife would get $4,500 & the broker would get $4,500 in the above example, totaling $9,000. She worked for another broker that gave her a 70/30 split, where she kept 70% & they kept 30%. And another broker that did 85/15, where she kept 85% & they kept 15%. And now we own our own brokerage, so we keep 100%. She’s always been a stay-at-home mom just doing a few transactions on the side to supplement our income.

What we know now, but didn't know years ago, is that you can find brokers that will not do a percentage commission split, but will let you pay them a flat fee & keep the rest. For example, you and your broker make $9,000 in the above transaction, but your broker just charges you $500 per transaction. So, whether you make $9,000 or $19,000, you just pay them $500. This is ideal for you!

Now, imagine finding a flat fee broker like I mentioned and just doing 3 transactions each year for family & friends at an average of $300,000. That's $9,000 at 3% & if you pay your broker $500, you made $8,500 on just one of them. $8,500 x 3 transactions = $25,500 (you will have taxes & some fees that would come out of this).

That's significant extra money without significant extra work. A great option for tentmakers or their spouses!

*Note: I think this is better at producing side income than full-time income for tentmakers who want to remain devoted to ministry. The reason is that once you get past family & close friends, you'll have to put in more work to find more contacts to represent. And since the licensed person has to do most of the work (making it difficult to turn it into a business), it will pull you away from your ministry if you push it too far. That's why I recommend this primarily as a way to make an extra $20-30k/yr, not $60k+ (unless you're willing to put in a lot more time). This somewhat depends on your market, too, because if you're in a market where each of your home sales are in the $800k range, then your 3 transactions could be well over $75k.

**Another Note: I've worked with Aceable Agent to get you a sizable discount on your real estate licensing classes if you're in state where they operate. You can use the code 'tentmaking' at check-out for a discount. You can also check out this blog for more information about other places to get your license: The Best Places to Get Your Real Estate License


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