California is one of the most notoriously lucrative –and competitive– real estate markets in the United States. There’s a good reason there are so many TV shows about high-end property sales in the Golden State. As by far the most populous state, California needs housing to accommodate over 39 million residents! With all of these property transactions transpiring, a real estate agent stands to earn a lot of potential income from commissions. Curious how much money real estate agents in CA actually make? Let’s take a look.
What the Data Says
According to Indeed, the average real estate agent salary in California is $92,820 as of the end of 2022. Given how popular the profession is, and how quickly newcomers burn out, it isn’t too surprising to see this number below your expectations. That same site does note that 10-year veterans average a bit higher, at $109,796 per year. (Bear in mind there is little-to-no corporate ladder in the real estate industry; as a transaction business the motto is strictly “eat what you kill.” Time and experience only allow an agent to sharpen their hunting weapons.).
How Deals Work
The exact ways that agents earn money in California is fairly standard for almost every deal. Anytime a sale price is agreed between a seller and a buyer, the real estate agents representing them for that specific transaction take a commission. (The entire commission comes out of the amount going to the seller; so the seller essentially pays both the buyer's agent and the seller's agent).
The total commission for California real estate agents is usually 5–6%. So if your home sells for $1,000,000 then $50,000-$60,000 is going to the agents involved. The total commission is usually split evenly between the real estate agent representing the buyer (aka the selling agent) and the real estate agent representing the seller (aka the listing agent). So each, individual real estate agent gets 2.5–3% of the final sale price.
That 2.5–3% does not go straight into agents’ pockets though. Every agent must work under the umbrella of a licensed brokerage; so usually half of that is going to the agent’s real estate broker and the actual agent may only take home 1–1.5% of the sale price. The more experienced the agents, the more favorable their split may be with their broker (and vice versa for rookie agents).
As a rule of thumb, the higher the property prices (think multi-million dollar homes and well upwards) allow for more wiggle room in commission rates or realtor fees. Any seller of an elite property has leverage over agents that covet their listing, so these are usually the properties that have reduced agent commission rates. The listing agents who do represent these marquee estates likely also pass that reduction on to the buyer's agent too. This is becoming more common in California real estate, as the housing market in our state has seen the median home value skyrocket in recent years.
The Breakdown
So how much commission does a realtor make in CA? So if we believe the average income listed by Indeed, and we know an agent usually takes home 1.5% of each home sold, we can attempt to triangulate the average agent’s dealflow.
The average California realtor needs to sell (or should we say, act as the buyer's agent or seller's agent for) 6–7 $1 million dollar homes per year. That might not seem like a lot, but half a dozen transactions means the clock is ticking; with the seasonality causing a slowdown in activity, an agent must be closing something every couple of weeks.
Of course, not every home will sell for $1 million even. The lower the value, the more transactions an agent must complete. The higher the value, the fewer transactions required to hit that average salary. However, higher-priced homes often require much more labor and a larger marketing budget to achieve a successful outcome, so no real estate agent can afford to coast.
Not All That Glitters
In addition to a realtor’s commission splits with their counterparts in their deals and their own brokers, there are also other fees an agent must consider. Marketing costs, outsourced activity or junior labor, licensing and administrative costs, and of course, the always non-insignificant taxes. The larger and more eomplex the deal, then there are likely more than two real estate agents required; with all these real estate agents involved, commission in califrornia can get chopped up into tiny pieces.
All of these expenses can quickly escalate, and they do not always scale proportionally with an agent’s current level of market activity. In California, agent commissions may seem glamorous, but a major chunk of them goes toward an agent’s daily operations.
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