Lets start with how the REAL Estate commission actually breaks down.
Real estate agent commissions or realtor commissions are fees paid to the
listing (representing the house for sale) and selling (representing the
buyer of the house) agent at the close of a real estate sales transaction.
These fees can vary from one real estate deal to the next, or real estate
agency, or market region. Realtor commissions are usually determined by the
real estate office, agency, or market region.
Commissions are shared between the listing and selling (buyer) agents.
Furthermore, the "house" or real estate agency for each agent gets a cut. An
average commission breakdown as follows:
House sales price: $200,000
Commission percentage: 6%
Total commission: $12,000 (6% of $200,000)
Listing agent percentage: 3% (of $200,000) = $6,000
Selling agent percentage: 3% (of $200,000) = $6,000
But each of the agents will not actually pocket $6,000. The real estate
agency still needs to receive its percentage of the commission.
Real estate agents and brokers need the agency for different reasons.
The real estate agent needs the agency since it is illegal for a real estate
agent to represent buyers or sellers in a real estate transaction without
first signing with a broker's agency.
The real estate broker needs the agency since it is expensive and difficult
to perform as a solitary broker without the overhead, i.e., advertising,
marketing, phone, desk, and so on, that the experienced agency provides.
The real estate agency provides many necessary services for both agent and
broker. Of course the broker can start his or her own agency beginning at
$10,000-$20,000. As a small business owner, the broker agency can look
forward to start-up costs that include physical location and building costs,
liability insurance, broker and association dues, state employee costs and
taxes, small business taxes, and so on.
In return for this service, the agent gives the agency a part of his or her
commission (agency fees) depending on the agency commission structure. The
average commission structure between agent and agency varies. For example, a
commission split between agency and agent could be 50/50, 60/40, 70/30, or
80/20 depending on the experience and value that the agent brings to the
agency.
So, instead of the agent receiving the full $6,000 in the above example, his
or her commission may actually be $3,000 (50/50 split, agency gets $3,000)
for a novice agent, or it could be $4,800 (80/20 split, agency gets $1,200)
for a seasoned agent.
Typical Net Profit Scenario:
Let's say Mary's buyer purchases a $150,000 home. The total commission paid
is 7%, with 4% to the listing broker and 3% to the selling broker. Mary's
broker is paid $4,500. Mary's entitled to 50% less an 8% franchise fee. Mary
receives $2,070. From that, Mary pays her overhead expenses of 22% and puts
away 30% into savings to hold for payment of social security, federal and
state income taxes. Mary has made $993.60 net profit.
If Mary closes only one transaction a month and works a typical 40-hour
week, that makes her net hourly wage about $5.78 for the month. If she
closes two deals a month, then Mary makes about the same as the aisle clerk
at The Home Depot.
You get what you pay for. Paying a discounted (in the business referred to
as cut-rate)
commission will often get you a sign in the front yard and placement in the
Multiple Listing
Service, but little additional assistance and effort from your agent.
Realize that agents and real estate companies put up their own funds to
market and advertise your home. Marketing and advertising costs money -- the
lower the commission, the less incentive for an agent to put up his or her
own money to market your home.
Incentive plays a very important role in sales. A "full service" agent
earning a full commission will often "drop everything" to handle any
challenges that come along - an agent earning a smaller discounted
commission
does not have that same incentive.
Incentive is also important to the buyer's agent. Since there are almost
always two agents involved in every sale, they split the commission
according to the listing agent's instructions. One agent is your listing
agent. The other agent is the buyer's agent. When your listing agent dropped
his or her commission, did they also reduce the commission that will be paid
to the buyers' agent? If so, you won't find as many agents willing to show
your house - they'll be showing houses that offer a more customary
commission to the buyer's agent.
Finally, negotiating ability is an important skill in a listing agent. Would
you be willing to put your faith in an agent who can't even negotiate his or
her own commission to be earned, which they only earn if they bring it to
closing.
I hope this didn't bore you to badly, but thanks for listening.
I know that our Nation and Industry are on hard times, and I know how difficult it is for our local Humane Society to raise the funding to financially support all of the great work and dedication that it takes to successfully run an animal rescue shelter. But when you see the great photos of all of the family pets with Santa, it is absolutely heart warming. I have included pictures of our three (Ruby, Petey and Sweet Pea) with Santa as well as my parents, Richard and Cathy's little chihuahua Buster. We could all use a little help to put smiles on our faces this holiday season, I hope our little family of furry creatures has done just that!
