6 Financial Facts Most People Don’t Know About Realtors

Many buyers and sellers are surprised to learn how real estate agents are actually compensated. Unlike most professionals, Realtors are typically independent contractors (not salaried employees) and are paid only when a transaction successfully closes.

Whether you’re buying or selling in Hawaii or elsewhere, here are six financial realities about the real estate profession that often go unnoticed.

1. Realtors Pay the Full Self-Employment Tax

If you are an employee and look at your pay stub, you will see that your company pays a portion of your federal tax for Social Security and Medicare. An agent pays the full amount in what is called Self Employment Tax.

2. Health Insurance Is Not Employer-Sponsored

By law, businesses of a certain size must provide health insurance for full-time employees. The employee may have to contribute to their premium, but a large portion is covered by the employer. This is not so for Realtors. I personally pay $8800 annually for insurance and have no chronic medical conditions.

3. We Fund Our Own Retirement

There are no 401K benefits in the real estate industry. No one matches our retirement contributions. As self-employed individuals, we must discipline ourselves to contribute consistently to our Simplified Employee Pension Plans (SEP). This is not always easy, especially if we are having a bad year. Many people search “how much do Realtors make” without realizing how variable real estate agent income can be.

4. Hawaiʻi’s General Excise Tax (GET)

In Hawaii, real estate agents pay General Excise Tax (GET) on their gross commission income of approximately 4.2% on their earnings in addition to state income tax. Most providers pass this tax on to the paying customers, just like a retail store or hotel would do. About half of the listings I see in my market do not include GET, leaving that burden on the agents and brokerage firms.

5. Realtors Cover All Business Expenses

The true cost of being a Realtor includes far more than most consumers realize. The cost of doing business also includes liability insurance, also known as Errors and Omissions Insurance. This covers the agent and brokerage firm and both share the charge. Litigation over real estate disputes can be financially and emotionally taxing.

Continuing education required to maintain licensure is paid for by the individual agent. The necessary license fees, association membership fees, and MLS membership fees add up to several thousand dollars a year.

Tools for contact management, secure email, document filing, and storage are paid for by the agent. This is not usually provided free of charge.

6. Commission Is Split Multiple Ways

People who have bought and sold real estate know that agents are compensated at the time of closing the transaction. Traditionally, the seller pays the listing brokerage a negotiated percentage of the sales price for the service of getting the property sold.

If another brokerage brings the buyer, that cooperating brokerage usually receives half the total commission paid by the seller. The listing and selling agents are contracted to a split of the brokerage’s commission of anywhere from 50-80%.

For example: if a home sells for $500,000 with a 6% real estate commission, seller pays $30,000 in compensation. If the buyers and sellers agents are each on a 70% split with their brokers, each agent will receive $10,500, and each brokerage firm keeps $4,500. All taxes, expenses, and marketing costs are paid by the agents individually.

Real estate commission structures are designed to compensate both the listing agent and the buyer’s agent for the time, risk, marketing investment, and legal responsibility involved in the transaction.

Income Is Not Guaranteed

For every completed sale, an agent works hundreds of hours on tasks that do not directly produce revenue but are necessary nonetheless. Time spent showing the property to people who don’t end up buying. Listing and marketing homes that don’t sell for reasons beyond the control of the agent. These are things that happen to the best of Realtors. A real estate agent invests time and money on marketing that will hopefully bring a return on that investment.

The real estate industry has a high attrition rate. Many new agents leave within the first few years because of inconsistent income and high startup costs.

Real estate can be incredibly rewarding, but it is far from passive income. Successful agents build sustainable businesses through discipline, consistency, and a deep commitment to serving their clients.

If you have questions about the real estate industry in general or specifically about Hawaiian real estate, please feel free to contact me.

A hui hou