Are Realtors Paid Too Much?

Are real estate agents really worth the commission? In this episode of Ladies Who List, Chicago real estate agents Hayley Westhoff and Anna Theofanous pull back the curtain on how real estate commissions actually work and where that money really goes.

They break down agent commission splits, average realtor income, and the often overlooked costs of running a real estate business, including brokerage fees, marketing expenses, licensing, MLS dues, health insurance, self-employment taxes, and operating costs. This episode offers an honest look at what agents actually take home after expenses and why commission numbers can be misleading at first glance.

You will also hear what it is really like to be a full-time real estate agent, from working seven days a week with no salary or paid time off to managing unpredictable income and deals that fall apart after months of work. Hayley and Anna explain the value real estate agents provide, including protecting clients from costly mistakes, navigating negotiations, and guiding buyers and sellers through one of the largest financial decisions of their lives.

If you have ever questioned realtor commissions, wondered how much agents truly make, or want a transparent look at the business side of real estate, this episode delivers straight talk with no fluff and no filters.

Transcript

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(Transcribed by TurboScribe.ai. Go Unlimited to remove this message.) Welcome to our podcast, Ladies Who List. If you've ever wondered what really goes on behind the scenes in real estate, beyond the glitz and glamour of selling Sunset or the drama behind Million Dollar Listing, you've come to the right place. We dive deep into the questions you've always had, making you a smarter and more successful buyer and seller. No filters, no fluff, just real talk. I'm your host, Haley Westhoff, and this is my lovely co-host. I'm Ana Piafanas. And we're so excited to be here today. And we're talking about a topic today that's admittedly a little uncomfortable for us because it is about our income, but it is something that I think needs to be discussed. And I don't know if this has ever been discussed on any podcast, so this will be fun. The topic is if realtors are paid too much. Of course, we're going to say we're not because we're in this industry, but it's unfiltered. We're going to be honest. We're going to be truthful. And I do think that, especially with all these shows out there, Million Dollar Listing and Selling Sunset, it does really put it in everyone's minds that, oh, these realtors show up, they write an offer, and they make $250,000. And oh my gosh, that is so far, far away from the truth. So let's talk about it. So let's start with, on average, how much we're talking about here. So in the city of Chicago, anyways, we can't talk about the standard because there is no standard. No, no, no. No more standard. But we typically see, for a buyer's agent, somewhere between 2.5% and 3.5%, and for a seller's agent, somewhere between 2.5% and 3.5%. Correct. And when you do the math, this is a big purchase. That does sound like such a huge number. Yeah. So if we're talking $500,000, we're looking at $25,000 split between the buyer's agent and seller's agent, which is a lot of money. That's a lot. That sounds like a lot. And you and I have both been at a closing table before where we see the buyers look at the settlement statement and see that number, and they're like, oh. Dang, girl, you're making a lot of money off of this. I know. But that's why we're talking about this, because let's break that down. All right. So let's talk about how that's actually split, because you and I aren't walking away with$25,000. Exactly. Let's talk about how that's split. That $25,000, first of all, is split between two agents. It's split between the buyer's agent and the seller's agent, right? So that leaves us with $12,500. And from there, we have to pay our brokerage, a big fee, and we have to pay our admin. We have to pay our insurance. I mean, we're independent contractors. So this is split into a million different pieces. Yeah. So we're taking that $12,500, and we're paying a portion of it to our brokerage. And that could be taken as low now as $6,250, what is the average split. So that $25,000 really does not land in our bank account. Let's talk about just averages. The average realtor, and we all know, everyone knows five realtors. There's hundreds of thousands of realtors out there. Let's just talk averages. We actually looked this up. So- Thank you, ChatGPT. Thank you, ChatGPT, for everything. So a low-producing agent does between one and five transactions a year. So they're earning between $20,000 and $50,000, which was me, like my first two, three years in real estate. Honestly, I was hardly making a lot of money. I was spending more money than I was making my first couple of years in real estate. Then we have our average producers. So this is middle of the range. This is probably, if you know five realtors, this is probably three or four of them. They're doing between six and 12 transactions, making$50,000 to $100,000 a year. Not bad. That's not bad. Not bad. Okay. And then the top producers that are making over $100,000 make up only 20% of realtors. If even that, I honestly feel like it might even be smaller than that. That feels a bit on the high side. We thought that fact was incorrect. We thought that would be more like 10%, but we're going to stick with what ChatGPT tells us. So let's break that down. The median gross income of a realtor is$55,800. And that's a great starting point, but we need to move up from there over time. Right. That is probably actually what one of the girls on Selling Sunsets bags cost. Yeah, exactly. It is enough to live on and it's not bad, but that is what the average realtor is making. And we haven't even started talking about the cost of being a realtor. So first of all, we work for Compass, but Compass doesn't pay us a salary or anything. Right. I think the public thinks that our assistants, our admin, all these things, our marketing, that our brokerage is paying this for us. And they're not. That is coming out of our paychecks. Yeah. All of these fees that we have just to have our license, licensing fees, MLS dues, association dues, membership dues, office fees, technology, all of these things have to be accounted for and have to come off of our gross commission. And not only that, but you're not even factoring in the cost of gas and our cars to get around from showings. Yeah. And we're in our car all day, every day. Fortunately, we live in the city, so we're not going that far. But for agents that live in rural areas and the suburbs, and sometimes we do drive out to the suburbs, the gas, the mileage, all of the car maintenance that you have to have. And can we talk about parking tickets? Parking tickets? Yeah. I figured we were going there. Yeah. Parking tickets, we have to factor in another thousand dollars a month in parking tickets, if you're me anyway. I earmark probably 0.5 to 1% of my gross commissions for parking tickets. Yeah. That sounds about right. Because if you're 15 minutes, you're going to be 15 minutes late to a showing, there's a fire hydrant, you might take the risk and pull up there and put your hands on. And yes, we do get a lot of parking tickets. The other thing people don't think about is the fact that we're independent contractors. So we're paying for our own health insurance. We're paying all of these self-employment fees that I don't think people realize. I think that is the biggest piece that people don't realize. Other people that are on salary that work for corporations, they're getting benefits. They're getting health insurance. They get PTO. They get all of these things that we don't get. So just like you mentioned, we're paying our health insurance. We're paying self-employment taxes, which are approximately 15.3% on top of regular income tax. We have to pay for things like errors and omissions. For instance, I have a bookkeeper that I need to pay. I have two full-time employees that I have to pay that are W-2 that I have to have health insurance for. We have virtual assistants that we have to pay out of pocket. All of these costs of running your own business come out of our pocket, not Compass's pocket, not the brokerage's pocket, but the commissions that we make. And now you're taking that average of the$55,800 and you're paying health insurance on it. You're paying self-employment taxes on it. You're paying for gas and all of these other things. So now you can start to understand why the gross commission needs to be in that range. For us to be able to afford all of these expenses that we talked about and being an independent contractor, something that we haven't talked about is that we're independent contractors and we are 100% commission only. That means that one month we can have a great month, and the next month we could have zero closings. And there's a cost to that. It's hard to live like that. Not everyone can live not knowing what their year is going to look like and what the next three months are going to look like. That also doesn't factor in that you can work with a buyer for six months, a year, and go see a hundred properties with them, and then they end up moving out of state or they end up not buying. And you never hear from them again. How many times has that happened? I mean, I know the buyers, yes, there are some buyers where we go out once, maybe twice, and it's a super simple transaction. They're thinking that we're overpaid in that scenario, but they don't think about all of the buyers that we have taken out or listings that decided, oh, you know what, we're not going to sell anymore after we just spent thousands of dollars in marketing and hundreds of hours of our time showing the property and preparing the property. So there's a lot of work that we never get paid for. We also aren't thinking about how many hours we're putting into these deals too. I mean, we work 24-7. 24-7? Yeah, we're getting texts at 10 p.m., we're negotiating. I mean, I canceled a concert the other day because at 11 p.m. I was still negotiating. On vacation, I am sitting at the pool with my computer. Like we talked about, we don't get PTO. We don't get sick time. Like we're sick, we just don't, we don't get paid. We don't get paid. Not only do we not get paid, but we have to pay another agent to show the properties for us. Exactly. It costs us money to be sick and go on vacation. Oh, we're the worst people to go on vacation with. Yeah, I feel bad for my husband. Actually, I don't feel so bad for my husband. He works the whole time too. But yes, we truly work 365 days a year. I was doing a deal on Christmas Day and we don't get PTO, which I am not complaining because you and I both, we love our job and it does not feel like work to us. But it is true. We truly do not get sick days, vacation days, etc. Let's get into marketing a little bit because I don't think people realize all the costs we take on there as well. Because we're independent contractors, we obviously have to blast ourselves out and get our name out there. So you'll see realtors on the back of your cart when you're grocery shopping. We have to post cards for our listings. And when we're blasting our listings, we also want to market those on social media platforms as well, which costs us money. Exactly. And you and I are not, you know, we don't have bus benches or billboards or, you know, cart dividers. But there are so many costs of marketing ourselves. Having websites, social media managers, all of these things cost a significant amount of money. And the rule of thumb is that they say, you should be spending 20 to 30% of your commissions on marketing yourself. So again, just another thing that people don't think about. We are a small business that needs to put our name out there and that does cost money. Setting the record straight, we are not complaining, right? I mean, you and I both are very fortunate for where we are in our careers and we live a comfortable life. And we love our job. And we love our job, most importantly. But I do think it's important to shed light on what is behind those numbers because I am so sick of watching those shows when they show the potential commission. So few people are actually making the commissions that you see on Sunset. Yeah, I mean, that is a dream. And maybe 0.00005% of the Asian population are making commissions like that. That's why it's TV. But unfortunately, a lot of people got into this business because they saw those numbers. So I think it's just important that we talk about it. Over the years, we've learned to understand the overhead that comes with being a broker. And it takes a lot of time and we had to refine that. No, I hope this not only helps people understand what is behind these commission numbers, but also help people understand when they're entering the field. Because how many times have you talked to someone, I want to be an agent. And I have talked to so many people off the ledge. I mean, some people might be great agents, and I do think it's a good fit. But if you think you're going to get into it immediately and start making money right away, that is just not the case. It takes time. It takes time over years of expertise. And just to understand all of these things that go into it. It's not like TV. And it takes time. And for many, in fact, 87% of realtors leave the industry within two years because they get a very rude awakening. Hopefully, we were able to shed some light on this topic that I think people are generally very curious about. So thanks for tuning in. And until next time, bye.