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Real estate brokers are normally considered self-employed by the Internal Revenue Service. Even if they work under a designated broker, their income or salary is typically not determined by hours worked, but by actual sales. Residential brokers specialize in residential properties, and when there is a boost in the housing market, residential brokers often experience a boost in their income.
Broker Vs Agent
Real estate laws vary by state, and each state has its own real estate department, which issues and regulates licensing of real estate sales agents and brokers. When first beginning in the business of real estate sales, the applicant obtains her sales license and works under a licensed real estate broker. After completing a specific amount of experience, the sales agent can take additional courses and apply for a broker’s license. The average income for a broker is higher than for a sales agent, according to the May 2010 report by the U.S. Bureau of Labor Statistics, which reports real estate brokers made an average of $76,060 annually while sales agents earned an average of $52,490, for the same period.
Designated Vs Associate Broker
The broker supervising the sales agent is the “designated broker.” After obtaining a broker’s license, some brokers opt not to be a designated broker, and instead focus on sales and work under a designated broker. In this instance, the broker is an “associate broker.” In some cases the broker doesn’t work for a real estate company or under another broker, but works on his own, as his own designated broker, and might specialize, such as in residential sales.
A typical form of compensation for the residential real estate broker is the commission. This is a percentage amount of the final sale price. While typical commission rates might range from 3 to 12 percent, the rate is negotiable. In fact, it is considered taboo within the industry for a broker to discuss with other brokers the percentage he charges clients, as it is viewed as a violation of anti-trust laws. Some brokers charge fees for specific services, instead of or in addition to commissions. Normally a broker will offer a percentage of the commission he earns from a sale to the broker bringing a buyer, which might be 50 percent or another amount.
U.S. Bureau of Labor Statistics May 2010 report listed the five states that employed the greatest number of real estate brokers as Texas, New York, California, Florida and North Carolina. Of those states, brokers in New York made the greatest annual salary at an average of $131,410, with North Carolina reporting the lowest average at $55,950.
Residential Broker Income
While commission is negotiable, the International Real Estate Review reported in 2002 that the average residential real estate commission charged in the United States is between 6 and 7 percent. If the broker charges the seller 6 percent for listing a house, and sells the property for $100,000, the commission paid to the listing broker, by the seller is $6,000. If the broker offers half his commission to the buyer’s broker, the listing broker gives the buyer’s broker $3,000 and keeps $3,000. The broker’s gross income, after paying the buyer’s broker is $3,000 for a $100,000 residential sale.
Ann Johnson has been a freelance writer since 1995. She previously served as the editor of a community magazine in Southern California and was also an active real-estate agent, specializing in commercial and residential properties. She has a Bachelor of Arts in communications from California State University, Fullerton.