I am amazed at the craziness of the last few years regarding realtor commissions. As you know, the real estate market has been pretty impressive over the past few years. Record selling prices, record transaction numbers and amazing new construction growth have brought everyone who is anyone into the real estate business. With so many real estate agents and so little inventory, competition between real estate agents has become fierce. Suddenly the traditional 6% commissions dropped to 5%. After that the 5% commissions dropped to 4% and in some cases even lower. Now I'm all for competition. I feel it keeps a healthy market healthy. However, what many real estate agents fail to explain to their sales prospects when negotiating a listing contract and commissions is how the money is actually used and where it goes.
Where is the Commission going?
Despite what the general public believes, the entire commission does not go into the pockets of the Realtor. In reality, real estate agents only receive a small portion of the total commission. Below is the traditional breakdown of what happens to the commission when it is paid at closing.
Let's say you sold a $300,000 home this year and paid a 5% commission. The total commission of $15,000 is traditionally split between the buyer's broker and the seller's broker. So both brokers would earn $7,500. Then, your listing agent and buyer's agent would each receive a portion of the $7,500 each of their brokers received. The amount will vary for each agent depending on their split agreement with each of their brokers. Let's assume an average of 60%. 60% of $7,500 is $4,500. Now factor in all the advertising costs, including flyers, mailings, ads in various newspapers and trade magazines, open house costs, sign installation, virtual tour costs, etc. All of a sudden, out of $4,500, the agent is making less than $3,000. Under extremely favorable conditions, the time it takes to list a home, market it for sale, and bring it to the closing table is 50 days. If you do the math and based on the $3,000 the realtor takes home, they made $60 per day actively selling your home.
If your real estate agent is highly professional and very knowledgeable about the home market and marketing, they are worth EVERY penny they make. As an employee, your realtor is responsible for marketing and negotiating a VERY expensive product, your home. In most cases, a home will be the highest priced product you each buy or sell.
Do you really benefit from negotiating a lower commission?
I would also like to discuss realtors who are so easily willing to lower their commissions to get your offer. First, you have every right to negotiate a lower commission for the services of a real estate agency. But what are you actually negotiating about? As mentioned above, real estate commissions are split so many ways that almost 4 people get a cut and another big chunk goes into marketing costs. So, if you're a seller, and traditionally the seller pays a commission, you're actually negotiating your marketing dollars and the realtor's paycheck. In other words, you are negotiating the earnings of a professional who is supposed to work hard to achieve your ultimate goal...to sell your property for the highest possible price with the least amount of hassle. When this happens, your real estate agent has no real incentive to work hard for you and the sale of your home. In other words, the real estate agent may choose not to sell your property as much as they normally would if they paid a higher commission.
IF A REAL ESTATE OFFICE IS SO EASILY WILLING TO GIVE UP THE MONEY THEY WORK HARD FOR OR ACCEPT A LOWER COMMISSION JUST TO GET THE BOOK, HOW EASILY IS THEY GIVING UP YOUR HARD WONDERED MONEY WHICH YOU WORK HARD FOR IN THE SALE?
The title of this article is Real Estate Commissions: They Really Get Too Much Money. The value of a real estate agent is really based on the level of service you expect and the results you expect from your real estate professional. If you have been disappointed with the level of service and/or results your realtor has provided, I would suggest that you interview multiple realtors before deciding who will ultimately be responsible for marketing and selling one of your most valuable assets. If you want more information about choosing the right real estate agent and what questions to ask during interviews, you can request a FREE REPORT on my website.
Regards,
Sean
Passion. Focus. Dedication.
Sean brings commitment and dedication to providing quality service to his clients. He does what it takes to make things happen and you always know he has your best interests at heart. It offers reliable communication and compliance to guide you in the right direction when it comes to your most important decisions. You will receive the individual attention you deserve, with a warm and caring style all his own.
Most importantly, Sean knows what counts: Passion. Focus. Dedication. For Sean, these are the key elements of success and the foundation for the way he approaches all of your real estate needs. You owe it to yourself to call him today. You'll be glad you did.
