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I'm just wondering what factors go into determining why a realtor gets 6 or 7% commission for selling a house? I realize that this is amount is split into different pieces, but IMHO, I just don't see why it warrants spending $20K with a realtor to sell a $300K home.
Please give your thoughts. I look forward to the replies...
As I've said in previous posts, I've helped sellers save a minimum of a hundred thousand dollars on the sale of a home (figuring a minimum list price of $1.5 million). Anytime I save the seller more than I'm charging him/her I consider it a fee well earned. For agents who don't add this kind of value to the process, you have a very good point!
If the commission on a $300K house is 6%, which gets split 50/50 between listing agent and selling agent, then each party receives $9,000. Right off the top the brokerage gets between 30% and 50%. National brokerages will take an additional %5 for their franchise fee, and between Errors and Omission Insurance and Labor and Industry Tax, we have an approximate commission of $ 5,000. As independent contractors, Realtors have to pay for every expense out of their own pocket. Here are just some of the fees: Realtor dues, mls dues, office fees, education, car insurance, flyers, print advertisements, web sites, signage, gas, computers, etc... Here is a list of services all my listings receive:
Free staging
color flyers
color newspaper advertising
color real estate advertising
enhanced listing on Realtor.com
automated feedback system
one year home warranty coverage
virtual tour
individual toll free info line
post card marketing.
This kind of marketing campaign comes at a great cost to me, not to mention my time spent showing the home, restocking the flyer boxes, re-staking directional signs (which disappear frequently), holding open houses and brokers' open houses and ultimately managing a successful transaction. The average time on market for a listing in my area is currently 118 days.
I don't do dual agency, so I'm an exclusive agent for the seller. After 4 months of marketing and tending to a listing I will probably walk away with $3,500, and after taxes I might be left with $2,800.
Keep in mind that occasionally listings get cancelled, expire, or end up going into foreclosure, and there is zero reimbursement for the marketing dollars and efforts expended.
I'm not getting rich in real estate, but I make a decent living, earning, what I believe are fair wages.
I hope this give you a better insight into where your money goes. For home sellers there are quite a few alternatives, such as "for sale by owner" option, or limited service brokerages. Like everything in life, I believe you get what you pay for.
I'm just wondering what factors go into determining why a realtor gets 6 or 7% commission for selling a house? I realize that this is amount is split into different pieces, but IMHO, I just don't see why it warrants spending $20K with a realtor to sell a $300K home.
Please give your thoughts. I look forward to the replies...
Commission is negotiable and not every state pays 6 and 7%. 4% and 5% is VERY common in massachusetts. My house is on the market and IMO my realtor has earned every penny of her commission and I don't have an offer (yet). She has helped me locate/interview landscapers (and when i had almost given up hope in finding someone that wasn't going to charge me an arm and a leg she offered to have her son landscape my yard), helped me clean out my koi pond, met with the mason when i couldn't be at the house and so many other little things if i continued to write this would be a book.
If the commission on a $300K house is 6%, which gets split 50/50 between listing agent and selling agent, then each party receives $9,000. Right off the top the brokerage gets between 30% and 50%. National brokerages will take an additional %5 for their franchise fee, and between Errors and Omission Insurance and Labor and Industry Tax, we have an approximate commission of $ 5,000. As independent contractors, Realtors have to pay for every expense out of their own pocket. Here are just some of the fees: Realtor dues, mls dues, office fees, education, car insurance, flyers, print advertisements, web sites, signage, gas, computers, etc... Here is a list of services all my listings receive:
Free staging
color flyers
color newspaper advertising
color real estate advertising
enhanced listing on Realtor.com
automated feedback system
one year home warranty coverage
virtual tour
individual toll free info line
post card marketing.
This kind of marketing campaign comes at a great cost to me, not to mention my time spent showing the home, restocking the flyer boxes, re-staking directional signs (which disappear frequently), holding open houses and brokers' open houses and ultimately managing a successful transaction. The average time on market for a listing in my area is currently 118 days.
I don't do dual agency, so I'm an exclusive agent for the seller. After 4 months of marketing and tending to a listing I will probably walk away with $3,500, and after taxes I might be left with $2,800.
Keep in mind that occasionally listings get cancelled, expire, or end up going into foreclosure, and there is zero reimbursement for the marketing dollars and efforts expended.
I'm not getting rich in real estate, but I make a decent living, earning, what I believe are fair wages.
I hope this give you a better insight into where your money goes. For home sellers there are quite a few alternatives, such as "for sale by owner" option, or limited service brokerages. Like everything in life, I believe you get what you pay for.
Cheers,
Sandy
My question is how many realtors/brokers are giving to their clients what you descripe, I paid ^% and didn't receive all the things you descripe and IMO many other people didn't get it as well.
-I had to pay $395- to give the buyer a year warranty.
-I never got color advertisement in the newspaper or even a black and white add.
-I never received a color real estate advertisement
-I did receive a showcase at realtor.com but read in another blog that realtors/brokers get these in a kind of package if the list many homes and than get a discount for them.
-I did receive some feedback.
-I had a virtual tour but had to ask to take it over since it was so dark that you hardly couln't see anything. (By the way if you have a camera it doesn't cost that much, just some time and it is not that the realtor has to pay for a new camera for every lisitng, but I understand that time is money.
Still I have the same question why are the costs so high, since I pay 1,5% in Europe for my lisitng when it get sold. I even can list my home with more realtors at the same time, and guess what. There almost aren't any FSBO listings so the agents have way more work.
If the commission on a $300K house is 6%, which gets split 50/50 between listing agent and selling agent, then each party receives $9,000. Right off the top the brokerage gets between 30% and 50%. National brokerages will take an additional %5 for their franchise fee, and between Errors and Omission Insurance and Labor and Industry Tax, we have an approximate commission of $ 5,000. As independent contractors, Realtors have to pay for every expense out of their own pocket. Here are just some of the fees: Realtor dues, mls dues, office fees, education, car insurance, flyers, print advertisements, web sites, signage, gas, computers, etc... Here is a list of services all my listings receive:
Free staging
color flyers
color newspaper advertising
color real estate advertising
enhanced listing on Realtor.com
automated feedback system
one year home warranty coverage
virtual tour
individual toll free info line
post card marketing.
This kind of marketing campaign comes at a great cost to me, not to mention my time spent showing the home, restocking the flyer boxes, re-staking directional signs (which disappear frequently), holding open houses and brokers' open houses and ultimately managing a successful transaction. The average time on market for a listing in my area is currently 118 days.
I don't do dual agency, so I'm an exclusive agent for the seller. After 4 months of marketing and tending to a listing I will probably walk away with $3,500, and after taxes I might be left with $2,800.
Keep in mind that occasionally listings get cancelled, expire, or end up going into foreclosure, and there is zero reimbursement for the marketing dollars and efforts expended.
I'm not getting rich in real estate, but I make a decent living, earning, what I believe are fair wages.
I hope this give you a better insight into where your money goes. For home sellers there are quite a few alternatives, such as "for sale by owner" option, or limited service brokerages. Like everything in life, I believe you get what you pay for.
Cheers,
Sandy
If our agents gave that kind of service I'd have no issues with paying 6%. My old agent has a client that I know, the house is listed at 900k @ 6%. The seller asked for a virtual tour and was told "they're too expensive" so it didn't happen. Too expensive? That's the attitude up here right now.
I suggested it's time to find a new agent but after what I've seen they all seem to be singing the same song at this point.
I'm guessing it's because this is a small pond so they all feel they can swim in the same direction?
I know not all agents are this way but in this area it sure seems they are...
I think Sandy made a good point as to what our expenses tend to be as Real Estate professionals...this can be a very expensive business to be in and I think it is good to educate people that we don't necessarily make as much money as they think we do.
That said, I think the question was more about "justifying" our commissions in terms of the value we provide to our clients. Sandy's itemization DID addressed some of those things (and I am in no way being critical of her post here), but I think there is a great deal more that we (at least some of us) do that adds value to our clients (that makes it WORTH it for them to compensate us).
Just an aside...Realtors, we can't justify our commission based on our expenses any more than our Seller's can justify their prices based on what they OWE or have PUT INTO their homes. The market is what the market is...and we need to continue to justify our paychecks in terms of the service we provide to THEM.
I invest in my clients success, both financially and emotionally. Communicating with them on how things are going, taking down obstacles to their success, doing things that either they can't do...or being able to do them better (or more cost effectively), giving them access to the network of professionals that I have built in adjacent professions (landscapers, contractors, inspectors, lenders, escrow/title professionals, etc...), expertise in marketing earned through experience and education, and sometimes not sleeping at night because a listing isn't getting the showings it deserves and I need to figure out WHY!
Despite the reputation we have apparently earned (I reference the many negative comments I've seen in these boards), there are many professional, talented, and dedicated REALTORS out there who deserve every penny they are paid and more. Many times SAVE our clients money and heartache...and many of us go above and beyond their expectations.
So, (and I apologize for the diatribe) - commissions are negotiated between the seller and the agent (there IS NO STANDARD - by law) so you should be paying your agent what they are worth to you, based on what you need and the value that they provide. Be advised, a good REALTOR is a great negotiator (it's a professional skill we need)...if they can't negotiate successfully with YOU for THEIR paycheck...how well will they be able with your BUYER to protect YOUR interests?
I love being a REALTOR, I work hard for my clients, and I make a decent living doing so. I also like the guy I look at when I shave in the morning, and I sleep pretty well at night too!
I'm just wondering what factors go into determining why a realtor gets 6 or 7% commission for selling a house? I realize that this is amount is split into different pieces, but IMHO, I just don't see why it warrants spending $20K with a realtor to sell a $300K home.
Please give your thoughts. I look forward to the replies...
In some sense realtor fees are what people will pay. You can try to breakdown the costs as much as you would like, but the 6% is a historic standard. What is interesting is that selling a medain house at 150k (years ago) was 6%. Now a median house a 300k is still 6%. Hmm.... while the percentage is the same the actuall $$$ has doubled. Does it cost twice as much to sell? There is a valid arguement that it takes more effort to sell all $1M home vs a 250k home. However it really should not take any more $$ to sell a median home now as it did years ago. Sure inflation is there, but also technology makes it easier to connect buyer to seller.
So you can argue that spending 18k vs 9k to sell a median house is a rip off. Then again 6% is also a market thing. If you can fine a way to sell for 4% great. The problem is I don't see many realtors doing that. I understand form their point of view they need to earn a living for what they do, but in free market just because it COSTS XXX to provide a service does not mean that that PRICE to the consumer is accurate. Maybe if a realor and agency can figure how to make a reasonable profit (ie cost cutting) at 4% sellers will beat down their door and make these guys weathly?
Who knows how technology will impact the real estate business (ie the methods of marketing and buying/selling homes). Given this big upset in the market I can see this being a catalyst for change in the way the residential real estate is marketed.
Of course for now a potential seller can only interview potential agents and determine for themselves if they deserve that 6% or if they can get the same serivce from 4%. The thing to remember however is given the current cost structures not all agents are going to be willing to take less.
Being a real estate agent is expensive but I don't think that is the biggest issue. I think there are two larger issues at play here.
1) It is about risk vs. reward. Sellers state that they want lower commissions, but when asked to GUARANTEE payment most choose to go with the commission model. I offer hourly rates (billed every 30 days), flat rates (fee guaranteed me but due at close, termination, or expiration), OR commissions (all or nothing).
I am always surprised at how many people balk at paying me LESS but guaranteeing that I get paid. So for example my hourly rate clients spend at most $1200 to get their home sold, but they pay the bill every 30 days regardless. (These are FSBO consultations so no buyer agent commission involved).
I bring this option up to many clients and many would rather PAY ME MORE in order to NOT have the risk of paying me. Real estate agents, because they work on a contingency basis, have to BUILD in a risk factor for not selling the home and not getting paid. That loss is a business expense for us.
Each and every client is sharing in this risk If sellers really want lower fees, it means they (the seller) have to assume the risk for the house not selling. When you go to the doctor you still pay the bill even if you don't like his diagnosis. Sellers want to be able to walk away if they don't like our services without having to pay. It's that simple.
#2) There are just plain too many real estate agents. The overhead costs of being a real estate agent are great. Since most agents have just a few listings, they have to spread those costs of overhead on just a few listings, which increases the cost needed from each client. Fewer real estate agents means that each agent can do more business which lowers their overhead share per client.
That's my .01 worth. I'm sure my perspective will tick someone off!
Being a real estate agent is expensive but I don't think that is the biggest issue. I think there are two larger issues at play here.
1) It is about risk vs. reward. Sellers state that they want lower commissions, but when asked to GUARANTEE payment most choose to go with the commission model. I offer hourly rates (billed every 30 days), flat rates (fee guaranteed me but due at close, termination, or expiration), OR commissions (all or nothing).
I am always surprised at how many people balk at paying me LESS but guaranteeing that I get paid. So for example my hourly rate clients spend at most $1200 to get their home sold, but they pay the bill every 30 days regardless. (These are FSBO consultations so no buyer agent commission involved).
I bring this option up to many clients and many would rather PAY ME MORE in order to NOT have the risk of paying me. Real estate agents, because they work on a contingency basis, have to BUILD in a risk factor for not selling the home and not getting paid. That loss is a business expense for us.
Each and every client is sharing in this risk If sellers really want lower fees, it means they (the seller) have to assume the risk for the house not selling. When you go to the doctor you still pay the bill even if you don't like his diagnosis. Sellers want to be able to walk away if they don't like our services without having to pay. It's that simple.
#2) There are just plain too many real estate agents. The overhead costs of being a real estate agent are great. Since most agents have just a few listings, they have to spread those costs of overhead on just a few listings, which increases the cost needed from each client. Fewer real estate agents means that each agent can do more business which lowers their overhead share per client.
That's my .01 worth. I'm sure my perspective will tick someone off!
Rather than being ticked I'd love it if our agents had a menu of services and choices ranging from low$ to pamper with champagne and chocolates! This model leaves it up to the buyer of the service exactly how much they want to spend and get instead of the same 6% to all and different service to all as well.
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