Why do realtors make so much? (days on market, fit in, sales)

[matrix5k]

We sold our first house for 350k and the realtor made 17.5k commission. The house we bought after that was double the price and the seller's realtor took double the commission. Was it double the work? Don't think so.

[simplexsimon]

Blame the seller. I believe these are negotiated. Your agent took 5% for himself?

In the house we just bought the buyer's agent received 2.5% and the seller's agent received 1.875%.

Companies like Redfin have been putting pricing pressure on agents, but it ultimately comes down to what the consumer is willing to accept.

[matrix5k]

No it was 3% for the seller agent and 2% for the buyer agent which is pretty common.

My point is, does a realtor do double the work for a 600k house vs 300k house?

[mdovell]

Not really but there's a number of factors.

Staging, scheduling, how many questions etc. The more a house is the fewer the buyers but probably more questions, especially if they dropped.

My folks live in a place where most homes are 400-475k.theirs I'd say are 425-450k. As much as I love my folks I can't see it beyond 450-475

So some dumbass neighbor put in a huge addition and put it on at 650k. Now it's 525k and it still doesn't fit in the neighborhood. Why's that matter? Now they can't reset the old "days on market" Now there is nothing wrong with the house but it is an outlier in terms of prices and this takes longer to explain to buyers of neighboring homes.

There's also commercial real estate agents and tons of other information to consider like school districts, zoning, traffic. There's some real estate agents I wouldn't trust to hold a glass of water. But there are legit local ones that are trying to make an honest living and reputation.

[gf2020]

The individual agent doesn't actually get the whole commission. A portion goes to their office, etc. If you feel the commission is too much then try selling your house on your own.

[CrowGirl]

Realtors are a type of sales professional and a large percentage of sales professionals make their money through commissions. So on a used car lot a sales person will get more for selling a 3 year old Mercedes than a 10 year old Kia.

The generally accepted wisdom (with which you can agree or disagree) is that paying a salesperson by commission aligns his or her interests with your own. This is a little more clear in real estate with seller's agents than buyers agents - both do better when the house sells for a higher price. Paying by commission also means that realtors get a risk premium - they don't get paid at all if no transaction happens.

[matrix5k]

We've been to 20 or so open houses and more often than not, the realtor knows nothing about the property. They can't answer simple questions like "is there a gas line on the street?". I had to call the gas company myself, took me 3 mins. They ALL spend the majority of the open house playing on their phones. Blows my mind that they take tens of thousands of dollars per sale.

[Nogi48]

I'm selling my condo myself and offering 2% to my buyer's agent. Yah, I think it's crazy too!

[simplexsimon]

Originally Posted by matrix5k

We've been to 20 or so open houses and more often than not, the realtor knows nothing about the property. They can't answer simple questions like "is there a gas line on the street?". I had to call the gas company myself, took me 3 mins. They ALL spend the majority of the open house playing on their phones. Blows my mind that they take tens of thousands of dollars per sale.

Sounds like you picked someone bad and feel like he did not deserve the money, which is understandable. How thorough was your agent vetting process?

We interviewed a handful of agents both referrals and people I found online. I asked each one to send me a list of past 12 months of transactions before our phone call and had a list of questions ready. One question I asked was how often their transactions were houses the agent found or the buyer found and they all said it's about 80/20 the buyer finds the house himself.

The agent we ended up with was fantastic. He owns investment properties and pointed out all the stuff that would need to get done and about how much it might cost. He lived in the town we were looking to buy in so he was familiar with the neighborhoods. The broker also gave us a very small refund to compensate for certain costs.

And lastly and most importantly he put up with all my BS questions I asked as a first-time buyer and also as someone who is just curious about stuff.

[MikePRU]

Originally Posted by matrix5k

We sold our first house for 350k and the realtor made 17.5k commission. The house we bought after that was double the price and the seller's realtor took double the commission. Was it double the work? Don't think so.

If you think this is all profit that an agent is stuffing in their pocket, you are sadly mistaken. Here's how it really works . . .

From a strict legal perspective, any commission paid is paid directly to the brokerage. The agent and brokerage have an arrangement to split the commission which could result in anywhere from 45% to 99% of that commission ending up on the agent's side of the ledger. Different brokerages have different compensation plans and in many brokerages your "split" on any particular transaction depends upon how much production you've done previous to that in your current fiscal year as some brokerages have graduated compensation plans. I'm simplifying this a bit but that's how an agent gets their gross income. Also, if you happen to be an agent on a team then you're also kicking some of your commission up to the team lead. That can be anywhere from 25% to 50%.

Agents have a lot of expenses as well like association dues, MLS dues, errors and omission insurance, and much more. In brokerages where agents have the opportunity to take home more of the commission they also have to carry more of the operating expenses. So, an agent keeping more of the commission is paying for things like signs, sign posts, open house signs, business cards, marketing themselves, marketing their listings, and much much more. In some brokerages, you even have to pay for having a desk in the office and using the printer/copier. Basically, there's a lot of overhead that we have to cover and the more of the commission that lands in my check after the transaction, the more of that I'm responsible for. I also have a lot of other sunk costs like my computer, my camera equipment, etc, etc, etc. Plus, I put a ton of miles on my car every year which means I spend a ton on gas and maintenance.

I would add that this is a severely overpopulated industry. Most agents don't close that many transactions every year. If you made $17K on a single transaction but it was one of three you did this year, you're not going to be retiring anytime soon.

On top of this, we're independent contractors. So, this means we get ZERO benefits My health insurance costs me $2K/month for my family of five and that's just one thing I have to pay for because of my independent contractor status. The government views me as "self employed" as well. So, I pay a boatload of taxes as well. I don't have anyone doing a matching contribution to my retirement account. So, I need to put away more of my income than you would.

I would also add that there is the factor of risk/reward. I'm taking on a TON of legal risk by assisting you in the sale of an INCREDIBLY valuable asset. Plus, I'm spending money on my clients without any guarantee of getting any return. If you decide you're not moving or decide to move on to another agent then whatever I've spent and whatever time I've put in is a total 100% loss.

There's a very, very high failure rate in this industry. Higher than the restaurant industry which often gets used as an example of a tough industry to succeed in.

So, what do you think? Should I sign you up for pre-licensing classes so that you can take advantage of this wonderful "get rich quick" scheme?

Originally Posted by CrowGirl

The generally accepted wisdom (with which you can agree or disagree) is that paying a salesperson by commission aligns his or her interests with your own. This is a little more clear in real estate with seller's agents than buyers agents - both do better when the house sells for a higher price. Paying by commission also means that realtors get a risk premium - they don't get paid at all if no transaction happens.

While I agree with you that the buyer's agent being paid based on the sale price of the home seems like a conflict of interest, in practice it doesn't often result in such. We're just getting a couple of points from the home sale on average and it would take a significant change in the sale price to put any kind of significant money in my pocket as a buyer's agent. If you increase the sale price by $10K that increases my commission usually between $200 and $250 which after I split it with my brokerage, etc., etc., etc. (see above) is really not going to put anything into my bottom line.

What does increase my income is when I take exceptional care of my clients and do an outstanding job for them regardless of what my pay is in that particular transaction. Why? Because then the client does repeat business and refers their friends/neighbors/co-workers/family to me. It's way better to close more transactions then it is to try and push the sale price. Not all agents think this way. However, the more successful ones definitely do.