The mystery of the vanishing commission - Posted by Lee Allen

Posted by dealmaker on October 27, 2007 at 04:55:25:

Sorry, all wrong!

SS/FICA is 15.3% but the tax rate is NOT 28%. On the first $31,850 of TAXABLE income the rate is 15%.

To arrive at TAXABLE income you must DEDUCT either STANDARD or ITEMIZED deductions (that’ll be at least $11,300 IIRC) and the PERSONAL deductions ($3300).

BTW, when talking about TAX RATES, please remember that they are MARGINAL rates. That is the rate applies on TAXABLE INCOME above the THRESHOLD.

So, while we do have a 35% rate, it applies to all TAXABLE INCOME above $349,700! So if you are good enough and lucky enough to earn $350K, the EFFECTIVE tax rate on is 29%.

In fact the vast majority of taxpayers in the US fall into the 15% and 25% brackets. A TAXABLE income of $63,700 (above the average) has a TAX of 19%.

Just wanted to clear that up.

One other thing. The reason the average agent earns $24K is because THAT IS WHAT THEY ARE WORTH. I spent my working life in “direct”, COMMISSION ONLY sales. It is IMPOSSIBLE to either OVERPAY or UNDERPAY someone who earns COMMISSION ONLY.

In fact the “average” agent that I run into is probably worth less than that!



The mystery of the vanishing commission - Posted by Lee Allen

Posted by Lee Allen on October 26, 2007 at 17:12:58:

Here is something that you might find interesting

On a $150,000 house the owner will pay a $9000 commission.
This commission is first split between the buying agent and the listing agent.

After the split the agent has $4500 but then the agent has to pay his broker 30-40% which leaves the agent with about $2700.

Out of this $2700 the agent has to pay for advertising and other expenses.

If the agent puts $200 into advertising then they only have $2500 left

Uncle sam then wants about a 35% cut for taxes and social security which then leaves the agent with $1625.

Notice that the agents only gets to take home about 18% of the total commission.

The average agent earns about $24,000 per year. Most agents don’t even earn that much every year.

source of data? - Posted by Kristine-CA

Posted by Kristine-CA on October 27, 2007 at 09:34:41:

I’d like to know the source of your data for “average agent” making 24K
and “most agents” earning less.

Good data wouldn’t use language like “most” and I doubt there is data
regarding “average agents.” Average income of agents, maybe. Or
perhaps median income. I’d like to know where this info is coming
from. Thanks, Krisitne

Poor and dumb - Posted by DP

Posted by DP on October 27, 2007 at 06:45:55:

The average agent makes that because the average agent is a dumb as a box of rocks. They have exclusive access to one of the greatest money-making databases in the world and instead of taking advantage of it, they drive people as dumb as them around hoping they’ll buy something.

Boo Hoo - Posted by Jimmy

Posted by Jimmy on October 27, 2007 at 05:18:14:

taxes are what they are. if an agent does not want to share with a broker, then become a broker.

show me someone who has been in the biz for more than 2 years and makes only 24K a year, and I will show you someone who needs to find a new line of work.

it takes a number of important skills to make money as a real estate agent. chief among them are good sales skills, networking, basic people skills. same goes for lawyers starting out on their own. and lots of other professionals.

work does not “just happen” because you hang a sign and get a business card. you have to get out there and get the clients. if it were as easy as a yellow page ad, we would have 40,000,000 realtors in the US.

Re: The mystery of the vanishing commission - Posted by Alvin Teebag Williams

Posted by Alvin Teebag Williams on October 26, 2007 at 19:03:22:

Based upon your number number of $24,000/year in income, the cut for taxes and social secuity should only be about 15%.

Here’s the newest source of info … but it cost - Posted by AlexCO

Posted by AlexCO on October 27, 2007 at 14:50:00:

For those with academic interests…

The National Association of Realtors surveys their members every year.
The link below leads you to the latest publication, the 2007 survey, “2007 NAR Member Profile”, but it costs you $125 for non NAR member, and $50 for NAR member.

A little old number … but, - Posted by AlexCO

Posted by AlexCO on October 27, 2007 at 14:31:08:

Re: source of data? - Posted by Bill Jacobsen

Posted by Bill Jacobsen on October 27, 2007 at 11:34:33:

Real estate markets are local and so I can give you some local numbers. Out of our local Multiple listing service, 1,519 licensed agents have had one or more transaction. There are about 2,200 licensed agents. The median sales of those who have one or more transactions is $1,189,400. The top quartile is $2,571,600. The median number of transactions was six.

If you assume 3(high) on $1,189,400 you get $35,682. Applying a 30% payment to the agency you are left with $24,974. This is in a market where the average property sale price is about ( I didn’t look it up) $230,000.

It is difficult to speculate beyond this. A beginning agent can receive 50% to 80% of commissions with various requirements to pay other expenses. Top agents can command 100%.

Agents often hire non-licensed personnel to do various adminstrative tasks. They form groups with other agents. They incorporate and pay themselves a salary to lower Social security tax.

This is the info from my small part of the country.


hahahaha - Posted by laughing

Posted by laughing on October 27, 2007 at 09:01:14:


Re: The mystery of the vanishing commission - Posted by AlexCO

Posted by AlexCO on October 26, 2007 at 21:24:13:

A typical realtor is a 1099 contractor. Therefore, he/she pays the self-employment tax, and not a W-2’s employee-portion of social security tax. The self-employment tax alone is 15.3% of the gross income.

Re: A little old number … but, - Posted by Kristine-CA

Posted by Kristine-CA on October 27, 2007 at 20:34:33:

Thanks for the link. It didn’t indicate that the “average agents” make less
than 24K, but the numbers are not good, to be sure. I’m surprised how
long how long it takes to make what I call a living…if they ever actually
do. Those numbers are depressing to me. Kristine

Re: The mystery of the vanishing commission - Posted by Lee Allen

Posted by Lee Allen on October 26, 2007 at 21:50:47:

You are correct. Between a 28% federal tax and 15.3%Fica tax you are taxed 43.3%
If you are unfortunate enough to be in the 35% tax bracket then your total tax bill is over 50%.
Social Security is a tax because you will never see the benefit. It will be long bankrupt before we ever collect.

my experience - Posted by Natalie-VA

Posted by Natalie-VA on October 28, 2007 at 07:50:12:

Hi Kristine,

A lot of it also has to do with price ranges. Obviously agents who live in an area of higher prices make a lot more money. When I started selling RE, I think the median price in my area was well under 200k.

I got licensed to sell RE in 1999 and started investing in 2000. I worked full time and made a couple of thousand dollars that first year. In 2000 and 2001 I made about 36k each year (as an agent). It then became obvious to me that my time was better spent investing. I have my broker’s license now, but I no longer take on clients. I could see where I could have stuck with it and worked my way up to 100k a year, but I can do better investing (with less work IMO).


dillusional dollars - Posted by Truth Teller

Posted by Truth Teller on October 28, 2007 at 05:34:01:

Yes Depressing to think that many Realtors can make more by working at Wal-Mart or Target…

But I find that when I find a good one they are worth their weight in GOLD…

But it takes so long…

I talk to so many who’s number one reason for being a realtor is time flexibility… not MONEY…

I am a firm believe that you get what you focus on… and if it is FREE time then that s what you get FREE time and if it is 100-200K a Year then that is what you get 100-200K a year… I like the book “secrets of the millionaire mind” and I went to the millionaire mind instensive they have with the Hubby… It changed us into looking to what we want.