For many new real estate agents, making six figures in real estate seems like the elusive benchmark to chase. After all, the average income of an individual in the United States or Canada is around 70k/year, based on 2021 statistics.
Earning $100,000+ a year still has a certain ring to it, and with it the perceived lifestyle and status.
But making 100k in real estate can be deceivingly dangerous for a variety of reasons, and I assure you that your standard of living will hardly elevate. In fact, some agents will see themselves struggle more at this income level.
So lets delve into the realities of becoming a $100,000 real estate agent.
Low Volume & High Earnings
As of March 2024, the median sale price of a home in Canada was approximately $700,000 according to the Canadian Real Estate Association.
If we use 2.5% to calculate the commission for a buyer’s agent, the commission earned on the purchase of a property is $17,500.
This means that a real estate agent would have to close less than 6 deals a year (or 1 deal every 2 months) to earn a gross commission of $100,000.
6 deals a year is low volume, and leaves the real estate agent vulnerable to income volatility if a deal doesn’t close or a client changes their mind. In any business where the model is based on infrequent high-ticket sales, revenue swings can be too wide to establish any kind of predictability.
Spending More And Living On A Prayer
Despite being at risk of an unreliable income stream, many real estate agents start splurging because they feel like they have to ‘play the part.’
Maybe you feel you’re in the big leagues now. The top producers at your office see you on the Top Ten list this month and actually say hi to you now. They’re driving nice cars and you’re still pulling up in your beater, and you desperately want to fit in.
You see an ad that shows your local BMW dealership offering a brand new 3-series lease starting at only $400/month. And of course, your clients will respect you more if you drive a BMW, right?
This is the sort of thinking that can tank any potentially successful real estate business. Do not make any big, unnecessary purchases or financial commitments until your business has systems in place that establishes a pipeline for new prospects to reach you consistently.
In other words, if you’re at the stage in your real estate career where you’re just hoping deals will come your way, you can’t possibly be sure you will earn 6 figures consistently every year.
Beginners Luck Runs Out Quick
If you’ve had success your first year, take stock of where the deals originated. If the majority of your deals came from friends and family, they’ll unlikely move again for a few years.
This means without a systemic approach to prospecting in your business, you’re going to have a tough time repeating a good year of income again.
Many agents make the mistake thinking that once they cross the 100k threshold, they’ve automatically figured out how to be a top producing agent. The reality is, there are no guarantees in business. You can have an amazing year, followed by two disastrous years after.
How Much Are You Actually Left With?
Earning $100,000 at a job is considerably different than earning it as an entrepreneur. As real estate agents, we have a ton of business expenses to carry so your GCI (gross commissions income) is really only useful for determining which company award you get at the end of the year. It is not a measure of the quality of your life.
Lets look at some basic expenses after earning $100,000:
- Brokerage fees can vary between $15,000 – $20,000
- Taxes $30,000
- Licensing/board fees $5,000
- Gas $5,000
- Marketing & Advertising $15,000
I haven’t included other expenses like insurance, technology tools, client and networking costs, and education. And although these expenses may vary depending on where you live and your financial situation, it’s clear that what you’re netting at the end of the day is far less than you may think.
What Do We Take Away From All Of This?
In the traditional sense, most people think that earning $100,000 a year suggests a level of financial stability, but we’ve just learned that in real estate it is only an indication of the number of deals you happened to do that year.
Unlike a job, this can change substantially the next year.
- Your GCI is a fictitious number and does not bring the same level of security as a salary
- You net far less making $100,000 in real estate as you do at a job
- Fluking your way to six figures sets a dangerous precedent
- You need systems in place to bring a measure of income predictability in your business
- Invest in your business, not your lifestyle