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I'm just curious to know roughly how much does a realtor invest of their own money
(all incurred expenses); to get a house on the market and hopefully sold within a set
time-frame nowadays.
Are the commissions earned at day of closing enough to justify all the efforts invested
since the initial day of marketing the property ?
The "initial out of pocket" is all over the map. Lots of advertising type costs, not to mention the amortized costs of MLS and even desk space go into every listing. Some places are going to benefit from professional photos / web enhancements, others may need some some staging help.
If a place is inexpensive and the commission is small net is small and the "fixed costs" tend to be harder to cover, especially if the place sits on the market for several months. At the upper end the commission tends to be much better in absolute terms, but any upfront marketing costs are "out of pocket" for a much longer period of time, as the more costly places rarely close quickly.
It is important that agents manage their cash flow, and use the proceeds from their sold listing to finance the costs of their unsold listings. Volume helps tremendously.
Answer to question 1. depends on how many listings I have since some costs are blanket/flat/yearly.
Answer to question 2. depends on how many listings I sell that year.
I'm just curious to know roughly how much does a realtor invest of their own money
(all incurred expenses); to get a house on the market and hopefully sold within a set
time-frame nowadays.
Are the commissions earned at day of closing enough to justify all the efforts invested
since the initial day of marketing the property ?
Thanks
You market a luxury property differently than a $60,000 home. So it totally varies. The commission structure is about risk vs. reward though. If consumers would pay an agent an hourly rate for services, then the costs of doing business would go down substantially. As it stands for most brokerages through, the loss they take on homes that don't sell, is a business EXPENSE that all other seller's help to pay for. It is the cost of having an "all or nothing" payment system.
It is totally justified for that reason alone.
P.S. Just so you know my bias, I am a fee-for-service brokerage and do flat and hourly rates for almost all my business. I am not invested in the commission model, but consumers don't get to have low rates AND have the benefit of not paying if the house doesn't sell. Only crazy business people, who are pretty much all out of business now, do that.
It is also vastly different for REO brokerages who may well have 100s of thousands of dollars tied up. In that case the cost of money and the leakage can be a substantial cost of doing business.
On the otherside a REO broker does not do much other than get it in the MLS and even then it may be with three photos. Not exactly a high cost marketing plan.
We take home about 65% of what we get in commissions after the split. And before taxes. So about 35% goes to overheads and advertising as such.
P.S. Just so you know my bias, I am a fee-for-service brokerage and do flat and hourly rates for almost all my business. I am not invested in the commission model, but consumers don't get to have low rates AND havethe benefit of not paying if the house doesn't sell. Only crazy business people, who are pretty much all out of business now, do that.
Sellers in my area, either give the flat fee guy a shot and then when their place does not sell, use a traditional full service model or go straight to the full service model.
Consumers in my neck of the woods are highly skeptical of a fee for service model. Or, perhaps having to pay regardless of the outcome is a greater concern.
It's no different than how most attorneys work. Clients pay an hourly rate, billable in quarter hour increments or hire the attorney on a contingency basis, whereby the attorney takes usually a minimum of 35% off the top of the award. If the attorney loses, out of pocket expenses and court fees are billable.
The Fee for Service model is the best model for consumers who are serious about reducing the cost of brokerage.
If I could fly it, in my area, I would get my broker's license and do it in a NY minute.
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