If you’re considering getting a Colorado real estate license, it’s important to know your income potential so that you can effectively manage both your short- and long-term financial planning. This is particularly important since you’ll be running your own real estate business.
To know your income potential, it’s important to first understand how real estate agents make money. Real estate agents typically don’t earn a base salary. Instead, they receive a commission on each sale they broker for a client. This commission is usually a percentage of the sale price of the property.
Since your income is commission based, the more deals you close, the greater your earning potential. In addition, your commission will be greater when you help broker the sale of a higher value property than with a lower value property.
Commissions vary, as one of the first things you do in real estate is learn how to negotiate your paycheck. Having said this, the National Association of Realtors (NAR) states that generally, real estate commissions are between 5-6% when selling a home in 2023, with some variation based on location.
Real estate commissions are split between the seller’s agent and the buyer’s agent. These agents often must give a percentage of their split of the commission to their brokerage based on the deal they’ve worked out when they join the brokerage.
For example, if a house sells for $500,000, the total commission will be $30,000 if the commission is 6%. The seller and buyer agents each receive a share of the commission. Sometimes the shares are equal, sometimes not, but if we assume equal shares for our example, the seller’s agent and buyer’s agent will each receive $15,000 from that commission. However, the exact amount that they receive out of that $15,000 commission will depend on their agreement with their brokerage.
Commercial real estate commissions are commonly between 4-8%. For commercial and residential sales above $1,000,000, the percentage may be lower, but the dollar amount of the commission is much higher.
There are a variety of factors impacting your income as a real estate agent:
You’ll need to join a brokerage before you apply for your Colorado real estate license. This is an extremely important decision, as the brokerage firm you choose can play a significant role in your earning potential. For this reason, it’s critical to do your research, compare brokerages, and choose the firm that will set you up for the greatest likelihood of financial success.
The first thing to understand is that interviewing with a brokerage is not like interviewing for a job. You are interviewing them, they are not interviewing you. Ultimately, you get to choose which brokerage you join, and you will have plenty of options.
The reason this process is different from a typical job interview is due to how a brokerage functions. Brokerages don’t sell properties; they make money off the sales of their agents. The more agents they have, the more revenue they make. You will never be more popular than the day you pass your real estate licensing exam. Brokerages are always looking to add more agents, and this means your services will be in strong demand.
Real estate schools teach the laws. Real estate brokerages teach you how to make a living in the industry. Therefore, you should make your selection based on which brokerage will provide the proper training regarding how to successfully build a real estate business in order to earn a good living.
There are two common mistakes many new agents make when selecting their first brokerage:
It’s important to understand that not every brokerage is set up for new agents. Some prefer established agents and design their systems to attract industry veterans. These brokerages aren’t likely to provide the right environment for you to receive the guidance and mentoring you need when starting out.
But there are also many brokerages who cater to new agents. These brokerages understand the importance of investing in your long term success, and they are more likely to provide the proper environment necessary to help you build your new business properly. Therefore, the most important criteria to evaluate when joining a brokerage are the services they offer to help a new agent build a successful real estate career. These include:
It’s common for new agents to select a brokerage that provides these services when they start out. Then when they become more established, they either negotiate a better commission plan with their current firm or move to a different brokerage that will provide the infrastructure and commission splits that are ideally suited to help a veteran agent thrive.
You can discover which brokerages to contact through a free real estate job board called Realty Connections.
In general, the real estate agents who work more hours tend to make more money. This should come as no surprise, as working more hours allows you to put more energy into marketing and client acquisition. It also increases your availability to take your clients on showings. Ultimately, this will translate into closing more deals over time.
That being said, real estate is one of the most accommodating and flexible industries, allowing you to control the number of hours you work and the income you’re able to earn. There are many successful agents who make real estate a full-time career, and there are also many who succeed in a part-time role.
Some part-time agents are satisfied earning a solid side income to supplement their regular profession, while others work part-time with the intention of building towards a full-time career in the future.
Your income will depend on how much effort you put into your career and in the early stages, this will strongly correlate with the number of hours you work. If your goal is to make a lot of money as a full-time real estate agent, you’ll need to invest time in:
The more time you spend during your first few years in real estate, the faster you’ll be able to master your trade and build a thriving business. However, if your goal is to generate supplemental income as a part-time agent, you will most likely be able to achieve your desired income level with a lower time investment.
As with most jobs, you will get better as you gain experience. During the first few years, you will need to spend a lot of time “learning the ropes” so that you can become a competent agent. There is a tremendous amount to master, but once you gain experience, you’ll find that many of the things that were initially challenging to you have become second nature. At this point, you can take the leap from figuring out the industry to becoming a very good real estate agent.
It should come as no surprise that there is a correlation between years of experience and average real estate income. According to the NAR, 39% of realtors with over 16 years of experience made over $100,000. This figure is significantly higher than the total number of realtors with all levels of experience making over $100,000 (25%). The longer you spend working in real estate and the more time you devote to your craft, the more likely you are to earn a lucrative income.
In addition to growing your knowledge and skills as you become more experienced, you will significantly expand your referral network and your ability to generate business from repeat clients. Over time, you’ll have a larger number of happy clients who will refer you to their friends and family. In addition, many of these people will eventually need a real estate agent to assist them with their next home purchase and/or sale. Referrals and repeat business are two of the biggest sources of clients for real estate agents, so expanding these channels as you become more experienced is a critical way to increase your income.
In a commission-based industry, your income will be significantly impacted by your ability to find clients. As you become more adept at finding clients, you’ll be able to close more deals and earn more commissions. At first, you’ll need to put in a significant amount of time marketing your business in order to generate leads and close deals. But as you build your business, your focus should shift to cultivating referrals and repeat clients, as this will be the most effective way to establish a steady stream of leads over time.
In order to shift towards a lead generation system based on referrals and repeat clients, you’ll need to build a sphere. Your sphere refers to the network of people who use you as a real estate broker. As you work with clients on deals, you should begin sorting them into three categories for your sphere:
To effectively build a sphere that will provide consistent referral business, you need to have all three tiers of clients in your CRM. Invest your greatest amount of effort marketing to your “A” clients, but also devote significant time marketing to “B” clients. Your “C” clients receive the least amount of attention in your marketing efforts.
In order to maximize your income as a real estate agent, it’s important to have the proper business systems in place that allow you to proactively manage your business and reduce your reliance on lucking into several lucrative sales.
As a small business owner, you must put the time and energy into setting up the systems that will allow your business to run smoothly and efficiently. Keep in mind that this will not be accomplished overnight. It takes time to establish this infrastructure, and often adjustments will be needed to improve your results.
Some of the most important systems to implement in your real estate business include:
Putting these systems in place will make it much easier to manage your business, allowing you to experience consistent, sustained growth over time. Many of these systems are provided by brokerages, especially those which cater to new agents. If you choose a brokerage that provides these services and systems, you won’t need to spend much money in this area.
As a business owner, you will be responsible for paying your operating expenses. Therefore, it’s important to understand what these will cost when setting your gross income goals. Otherwise, you may find that your net income at the end of the year is significantly lower than you expected.
Some of the most common operating expenses incurred by real estate agents include:
Keep in mind that these expenses will be tax deductible. Talk to your accountant when you start your real estate business so that you’ll know how to track your expenses in a manner that maximizes your deductions.
As with your business systems, many of these operating expenses may be provided or subsidized by your brokerage, which would reduce your expenses significantly. This is something you need to consider when evaluating potential brokerages. Just make sure the potential operating expenses you’ll incur make sense for you when choosing a brokerage.
The main takeaway is that while these expenses should always be factored into your budget and income model, they generally aren’t overbearing, and they shouldn’t deter you from embarking on a career in real estate. As long as you budget properly, these expenses are affordable and will not prevent you from building a successful business.
As with your business systems, many of these operating expenses may be provided or subsidized by your brokerage, which would reduce your expenses significantly. This is something you need to consider when evaluating potential brokerages. Just make sure the potential operating expenses you’ll incur make sense for you when choosing a brokerage.
The main takeaway is that while these expenses should always be factored into your budget and income model, they generally aren’t overbearing, and they shouldn’t deter you from embarking on a career in real estate. As long as you budget properly, these expenses are affordable and will not prevent you from building a successful business.
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