Salary of a Real Estate Agent

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Real estate agents pay taxes and business expenses from their gross commissions.
Real estate agents pay taxes and business expenses from their gross commissions. (Image: Jupiterimages/Comstock/Getty Images)

According to the Bureau of Labor Statistics, the median annual wage of a real estate agent was $40,150 in May 2008. "Salary" is actually a misnomer for these earnings. Although agents work for brokers, they usually do so as self-employed independent contractors whose income is actually business revenue from which they pay themselves a salary. The salary portion of an agent's revenue is the amount left after she has paid her taxes and business expenses.

Commission

Real estate agents derive most or all of their income from commission. Commission is the fee a seller pays the real estate broker who represents him in the sale of his home. The seller's broker pays the eventual buyer's broker from the gross commission. Each broker, in turn, shares her commission with the real estate agent who worked for her on the sale. An agent's commissions vary from year to year because they're dependent on market conditions.

Expenses

Real estate agents have many business-related expenses. Most belong to the National Association of Realtors through their local association offices. The associations charge dues in addition to fees for access to the multiple listing services. Agents also use their own cars and their own gas to list, preview and show properties. They're responsible for the cost of marketing their listings, too, although brokers sometimes share the cost. Some brokerages charge their agents for desk space, office supplies and administrative services.

Tax Considerations

The Internal Revenue Service allows independent contractors to deduct many of the costs of operating their businesses. A deduction reduces a contractor's income so that he pays tax on less money. Professional dues, licensing fees, continuing education tuition, business use of a car, business use of a home and some of the costs of business-related travel and entertainment are common deductions for real estate agents.

Duties Put Earnings in Perspective

Real estate agents work long and irregular, albeit flexible, hours. Sellers and buyers are typically available evenings and weekends, so agents schedule listing appointments and show properties during those times. However, much of the work that goes into closing a sale must be done during business hours, when the other professionals working on the transaction are available, so agents must be available then, too. In addition to working with clients and managing their transactions, agents spend much time marketing their listings to prospective buyers and buyers' agents. And, since they're self-employed, they must market themselves and engage in prospecting activities in order to get new business. While not directly compensable, time spent on personal marketing and prospecting comprises a substantial portion of an agent's work week, so it's prudent to include this time when reducing net earnings to hourly income.

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