Part One: Who Gets What?
All commissions are negotiable by law; there can be no collusion. Commissions are taken out of the sales price as a seller expense (Buyers usually do not have to directly pay any commissions to work with an agent). Usually two brokerages split the money, and then each brokerage splits their side of the money with their respective Realtors®. (Rarely does all the commission go to one person.) The four parties then pay all their business expenses and operating costs. What is left over is profit for income or further business development.
All products and services have a significant percent of sales commissions (of some kind) built into their pricing. In real estate however, it is right up front and public. The percentages for our industry are often 5-6% to sell a home. Frequently 2.7% of a 6% commission goes to the Buyer’s brokerage and agent, and the remaining amount of 3.3% remains with the listing brokerage and agent who have greater expenses because of advertising costs. This is typical; it is not fixed. Each individual brokerage (often the agent) determines what percentage they must charge in order to run a successful real estate practice.
Part Two: Are Realtors® Paid Too Much?
The answer can be both yes and no. The answer is determined by the individual agent you hire.
The answer is yes if he or she:
- does nothing to improve the likelihood of your property selling over and above what you could have done yourself (i.e. quality marketing materials and advertising campaigns).
- cannot skillfully and diplomatically negotiate on your behalf.
- does not deliver results (generate showings, leads, offers etc).
The answer is no if he or she:
- does their work responsibly.
- keeps you out of trouble.
- protects your investment.
- gets the job done for you professionally.
- spares you much anguish, time and expense.
Skilled Realtors should be able get you more money, negotiate more effectively, and represent your interests well. They also provide valuable intangibles like peace of mind, and allow you to keep focused on what you do best.
Keep in mind, when camping on this issue to determine whom you will hire to sell your home: sometimes even a deep commissions discounter is too expensive!
Consider this also:
- Our industry is commission only. Unless we successfully sell, we have no income!
- We are ‘independent contractors’ who are self-employed. We have no salaries, no ‘benefits’ and no bonuses. We pay for everything required to run a business, including our own continuing education. When comparing ‘apples to apples,’ it is necessary to compare a non-self-employed person’s pay, the costs of all benefits and perks, the taxes their company pays, and all business expenses.
- Is insurance too expensive? Is an attorney paid too much? Does a BMW cost too much? In one sense we will all lament: yes; but we still choose to pay. Perhaps that is because we have learned (many times the hard way) that the saying is all too true: we get what we pay for.