Real Estate Commissions are too high! Really…? It depends…
So, commissions are a funny thing in the Real Estate business. It’s the reason why there are thousands, if not millions of agents in the business and what makes the business honestly function. Without them, how would you motivate anyone to work 16-20 hour days to literally do what’s needed to find you the home you wish.
The going rate when I was in the business was 3% on both the selling and buying sides. So, a licensed agent would make up to 3% of the gross sales. However, something that isn’t regularly explained to consumers is that there are many deductions out of that commission and could eat away at the commissions enough to almost produce a loss for some agents depending on the price of the unit. Also, for some units, Builders would take more of the commissions from the agents because they knew that their “new homes” were attractive to new home buyers and also new home buyers could literally walk up to their sales center without an agent & move forward with a deal. However, there were conflict of interests with the sales center because they would sometimes make consumers “sign off” not having representation and the commission actually going to the “site agent” — which a lot of times wasn’t clearly explained by that agent.
Some of those expenses or deductions include a brokers split which could be as much as 50% or more of the commissions, taxes & fees paid to the state & sometimes local government offices, taxes on the gross commissions to Uncle Sam, or sometimes a “referral fee” if the information about the client called a “referral” in the Real Estate business was produced by another agent…this fee could sometimes be as much as 30%. Don’t forget all the time spent, the high price of gas on their usually large vehicles to escort around clients in the lap of luxury, little perks they use to “sway the client” into buying and many other expenses they sometimes accrue including a closing gift. I spent as much as $1000 for some closing gifts. However, the reason for such lavish closing gifts was because I also made about $23,000 or so off the sale excluding the tax I would owe Uncle Sam.
For example, if a consumer were to buy a condo worth only $60,000 dollars, the gross commission on the transaction would equate to $1800. If the client were referred to me by another agent across the country, I may have to pay $540 to the referring agent. Also, if I hadn’t paid all the commissions to my broker I owed the company up until that point, I would pay another $540 possibly for the sale already reducing my commission down to $720. Minus taxes and fees, I may be down to like $680. If I were working for someone like Coldwell Banker which I seem to recall was a 50% commission house (please note it’s different for all companies & so check with your agent, if you’re truly interested), I could actually be down to about $320 or so at this point. Realistically minus coffee I buy them many times I see them, all my other fees like my REALTORS association and local MLS fees and many other costs, this could be down to like $275 possibly since I would probably have to deduct about $50 per transaction if averaged over all transactions. This is also based on the assumption I did many transactions — it could be much higher if I didn’t.
So, in the end for let’s say 20 hours a work for a client which is on the low side, I’m estimating, I may have made $13.75 an hour & sacrificed all my time with my family since my client(s) usually needed me at any hour of the day.
Why do you care if your agent makes close to minimum wage for his/her living? Well, can you imagine how excited they will be when you call? And if you do find out they are making even more money, perhaps they should perk up even more. Make them accountable and estimate the time you are taking away from them as well. Of course, we know they are the licensed and “supposedly experienced” people in this business, but at the same time, they are doing a service for you on a very important decision. The more you know what’s “behind the scenes”, the better you are at the negotiating table and when you are needing him or her in a time that’s very critical in getting you your dream home.
It’s hard to feel sorry for any agent after reading about a $23k commission on one deal. That’s not a bad hourly wage.
Yes, we have expenses, yes there are sometimes splits and referral fees need to be paid. I believe listing commissions are too high for what most agents do for their clients.