I’m amazed at the craze the last couple years regarding Realtor commissions.
As you are aware, the real estate market has been quite impressive over the last
few years. Record sales prices, record number of transactions and amazing new
construction growth has brought everyone who is anyone into the real estate
business. With so many Realtors and so little inventory, competition amongst
Realtors has grown fierce. Suddenly, the traditional 6% commissions fell to 5%.
Then, the 5% commissions dropped to 4% and in some cases even lower than that.
Now, I am an advocate of competition. I feel it keeps a healthy market healthy.
However, what many Realtors fail to explain to their selling prospects when
negotiating a listing agreement and commissions is how the money is actually
used and where it goes.
Where Does the Commission Go?
Despite what the general public believes, the whole commission does not go
into the pockets of the Realtor. In fact, Realtors only get a small portion of
the total commission. Below is a traditional breakdown of what happens to a
commission when it is paid upon closing.
Let’s say you sold a $300,000 house this year and paid 5% commission. At
$15,000 total commission, traditionally it is split between both the buyer’s
broker and the seller’s broker. Therefore, both brokers would gross $7,500.
Then, your listing agent and the buyer’s agent would each get a portion of the
$7,500 each of their brokers received. The portion amount will differ for each
agent depending on their split agreement with each of their brokers. Let’s just
figure an average 60%. 60% of $7,500 is $4,500. Now factor in all the
advertising costs including flyers, mail-outs, ads in the various papers and
industry magazines, open house costs, installation of signs, virtual tour costs,
etc. Suddenly of the $4,500, the agent is netting less than $3,000. Under
extremely favorable conditions, the time it takes to list a home, market it to
be sold and take it to the closing table is 50 days. If you do the math, and
based on $3,000 take home for the Realtor, they earned $60 per day while
actively selling your home.
If your Realtor is highly professional and very knowledgeable about the
market and marketing homes, they are worth EVERY penny they earn. As an
employee, your Realtor is responsible for the marketing and negotiations of a
VERY expensive product, your home. In most cases a house will be the largest
priced product you every buy or sell.
Do you really benefit from negotiating a lower commission?
I would also like to discuss Realtors that are so easily willing to reduce
their commissions to get your listing. First of all, you have every right to
negotiate a lower commission for Realtor services. But what are you really
negotiating? As mentioned above, the Realtor commission is split up in so many
ways to where nearly 4 people get a cut and another large portion goes into
marketing costs. So, if you are the seller and traditionally a seller pays the
commission, you are actually negotiating AWAY your marketing dollars and
Realtor’s paycheck. In other words, you are negotiating away the earnings of the
expert that is supposed to work hard at reaching your ultimate goal…selling your
property at the highest possible price with the fewest hassles. When this occurs
your Realtor has no real incentive to work hard for you and the sale of your
house. In other words, a Realtor might decide not to market your property as
much as they normally would if paid a higher commission.
IF A REALTOR IS SO EASILY WILLING TO GIVE UP THE MONEY THEY WORK HARD FOR
OR ACCEPT A LOWER COMMISSION JUST TO GET A LISTING, HOW EASILY WILL THEY GIVE UP
YOUR MONEY THAT YOU DESERVE AND WORK HARD FOR IN THE SALE OF YOUR HOUSE?
The title of this article is Realtor Commissions: Do They Really Get Paid Too
Much. The value of a Realtor is really based on the level of service you expect
and the results you expect your Realtor professional to deliver. If you have
been disappointed in the level of service and/or results your Realtor has
delivered, I would suggest you interview many Realtors before making a decision
as to who will ultimately be responsible for the marketing and sale of one of
your highest valued assets.
