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Old 11-05-2009, 09:28 PM
 
377 posts, read 1,079,814 times
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You need to look at it through the sellers eyes. For example, if they sell a $400k home, at 6% commission, the seller's paying $24,000. This is after tax money, so before taxes they have to earn from their job approximately $34,000 to end up with $24k after taxes to pay the commission. This could be someone's entire salary for the year, meaning that they have to work an entire year to pay the commission and have no money remaining to live off of. This is the reason why sellers have issues with these large commissions.
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Old 11-05-2009, 09:38 PM
 
Location: Cary, NC
19,765 posts, read 31,656,940 times
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Quote:
Originally Posted by stevep View Post
You need to look at it through the sellers eyes. For example, if they sell a $400k home, at 6% commission, the seller's paying $24,000. This is after tax money, so before taxes they have to earn from their job approximately $34,000 to end up with $24k after taxes to pay the commission. This could be someone's entire salary for the year, meaning that they have to work an entire year to pay the commission and have no money remaining to live off of. This is the reason why sellers have issues with these large commissions.
Many sellers sell and pay no commission.
It happens every day.
So, they have myriad choices as how to proceed.

Wow, you should have been here for the demi-troll-fest over who pays the commission.
It was truly a hoot.
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Old 11-06-2009, 04:25 AM
 
Location: NW Las Vegas - Lone Mountain
15,756 posts, read 21,128,375 times
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Quote:
Originally Posted by stevep View Post
You need to look at it through the sellers eyes. For example, if they sell a $400k home, at 6% commission, the seller's paying $24,000. This is after tax money, so before taxes they have to earn from their job approximately $34,000 to end up with $24k after taxes to pay the commission. This could be someone's entire salary for the year, meaning that they have to work an entire year to pay the commission and have no money remaining to live off of. This is the reason why sellers have issues with these large commissions.

Not really. It is generally and historically paid with the gain in capital made on the house. At the present time that may not be true for some but one could as well think of the commission as simply a cost of the sale paid from the proceeds. That the proceeds are negative merely suggest this investment did not work out well...not that this cost is different from others such as a general loss of value in the recission.

For an investment property it is simply an expense reducing the basis of the home and effectively deductible.
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Old 11-06-2009, 09:28 AM
Status: "2B the trusted driving force in local real estate." (set 5 days ago)
 
Location: South Metro Denver for 25 years
8,694 posts, read 19,386,658 times
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Since when can someone making $24,000 a year afford a $300,000 house?

You'd need to make close to $75,00 a year. Now who's whining about a $18,000 cost divided four ways to provide a service that they wanted and contract for?

Come on, it could cost $30,000 just to remodel the kitchen. $50,000 to finish a basement.

Where are the owners whining about those costs?
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Old 11-06-2009, 11:31 AM
 
377 posts, read 1,079,814 times
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Originally Posted by 2bindenver View Post
Since when can someone making $24,000 a year afford a $300,000 house?

You'd need to make close to $75,00 a year. Now who's whining about a $18,000 cost divided four ways to provide a service that they wanted and contract for?

Come on, it could cost $30,000 just to remodel the kitchen. $50,000 to finish a basement.

Where are the owners whining about those costs?
Even if someone makes $75,000, they have to spend almost half of their yearly salary just to pay for the real estate commission on a $400k home. This is the reason why sellers have issues with commissions.
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Old 11-06-2009, 11:35 AM
 
377 posts, read 1,079,814 times
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Originally Posted by olecapt View Post
Not really. It is generally and historically paid with the gain in capital made on the house. At the present time that may not be true for some but one could as well think of the commission as simply a cost of the sale paid from the proceeds. That the proceeds are negative merely suggest this investment did not work out well...not that this cost is different from others such as a general loss of value in the recission.

For an investment property it is simply an expense reducing the basis of the home and effectively deductible.
It doesn't make a difference if it's coming from the capital gain, they're still spending $24k after taxes which means their net worth just went down by $24k. They need to earn an additional $34k in salary on top of their normal salary in order to cover this reduction in net worth.
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Old 11-06-2009, 12:20 PM
 
377 posts, read 1,079,814 times
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Again, from a seller's point of view, if they just sold their home for $400k at 6% commission, they just spent $24k on commissions. What they hear from realtors, is that the realtor is barely surviving and only made $2500. So the seller is saying, where did all of my $24k go??? Well, the buyers agent made $2500, the sellers broker made $1500 and the buyers broker made $1500. So, the four groups made a total of $8,000..... but the seller paid $24,000. Where did the other $16,000 go? Obviously, some went to overhead and expenses, but if you need $16k from every deal to cover these expenses, somethings wrong and these inefficiencies should be fixed. IMO, the realtor isn't making enough money and the seller is paying too much commission, but if these expenses are reduced, the realtor could get a larger paycheck from these expense savings and the total commission to the seller could also be reduced.
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Old 11-06-2009, 12:34 PM
 
Location: NW Las Vegas - Lone Mountain
15,756 posts, read 21,128,375 times
Reputation: 2661
Quote:
Originally Posted by stevep View Post
It doesn't make a difference if it's coming from the capital gain, they're still spending $24k after taxes which means their net worth just went down by $24k. They need to earn an additional $34k in salary on top of their normal salary in order to cover this reduction in net worth.
The value of an asset in a net worth calculation should be done after all mortgages and costs are paid. They are an approximation as you cannot know them precisely until you sell.

They are simply mis-stating their net worth and then complaining about the cost of the sale.

I don't hear you complaining about them making 150K in new income to offset their 100K mortgage payoff.
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Old 11-06-2009, 12:46 PM
 
Location: NW Las Vegas - Lone Mountain
15,756 posts, read 21,128,375 times
Reputation: 2661
Quote:
Originally Posted by stevep View Post
Again, from a seller's point of view, if they just sold their home for $400k at 6% commission, they just spent $24k on commissions. What they hear from realtors, is that the realtor is barely surviving and only made $2500. So the seller is saying, where did all of my $24k go??? Well, the buyers agent made $2500, the sellers broker made $1500 and the buyers broker made $1500. So, the four groups made a total of $8,000..... but the seller paid $24,000. Where did the other $16,000 go? Obviously, some went to overhead and expenses, but if you need $16k from every deal to cover these expenses, somethings wrong and these inefficiencies should be fixed. IMO, the realtor isn't making enough money and the seller is paying too much commission, but if these expenses are reduced, the realtor could get a larger paycheck from these expense savings and the total commission to the seller could also be reduced.
It is an inefficent system. That is brought to you by your legislature who continues to maintain a system that is pretty much inefficient by design.

There are too many agents and they do not do enough deals to be loaded to an efficient level. The skill level is too low. The system are not well loaded and are not run efficiently.

What you need to do is talk to your legislator and tell him that you want the system fixed. For instance the agent should have at least some college and 20 transactions before being turned loose on the public. And all brokerage revenue should come only from commissions...no desk rent. And all brokers must actually supervise each transaction.

Probably take a third off the cost of each transaction if you did.

Not likely though. Too much payoff for the inefficient system.
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Old 11-06-2009, 12:49 PM
 
Location: Columbia, SC
7,038 posts, read 11,206,003 times
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OleCapt is right of course.

Steve, nobody is forced to pay 6%. The seller can select FSBO, low service, or full service. When the seller is paying a Realtor they are paying for the Realtor's knowledge and time. The concept is the same with doctors, lawyers, financial advisors, etc. You are paying for knowledge and time. Knowledge and time comes with a value because some are better at it than others.
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