The elephant in the room, in my world, is almost always the commissions one is expected to pay the agent. Commissions are negotiable. They can be negotiated up and down (yes UP!), but I won’t digress.
Often times buyers do not understand that in order for agents to put you in our cars, pay umbrella insurance rates to cover you in our cars, gas, and sometimes lunches, we have to pay out of OUR pockets. Continued education, previewing homes almost every day for several hours, and attending and holding buyer forums costs us money. These are just the tip of the iceberg for agents. Many buyers do not understand that agents ONLY get a paycheck when we close an escrow. The company we work for does not actually hire us as employees. We are independent contractors who share the stage with our brokerage.
So ask yourself how long you would be willing to work at your job, hopeful you would get paid in three months? Not many people are cut out for this type of work, but fewer can sustain that sort of daily financial output without eventually getting paid. When a buyer closes escrow on a home, they DO NOT have to pay for a Realtor’s® fees (most commonly 3% of the sale price). So who pays? The SELLER!
Now for the tough part. The common, nationwide commission at this time is approximately 6% of the sale price of the home. In most states the commission is split 50/50, or 3% to the buyer’s agent and 3% to the seller’s agent. So what is the big deal? NO one likes to pay for that. We real estate professionals are only paid when the transaction is successfully closed. That sometimes can take months of intensive marketing and money out of pocket for the end game. So what is the issue? Many sellers don’t understand that the “free ride” they had when they purchased the house means that now they have to pay for that expertise at the closing table. Moreover, they don’t understand that part of the commission dollars pay for corporate advertising (our local brokers get their cut, as does the GREAT company), but we pay for many parts of the marketing. Signs, lock boxes, photos, and more are all the responsibility of the agent.
By the way, it costs you nothing more to pay a TOP agent than to pay a new agent. How can that be so? Because you are actually paying the Broker the 6% and they in turn pay the other agents involved. So each agent is but a sub-agent to the listing broker who is the one who has earned the right to the commissions. The work is often done, better or not, by the agent. So why not hire a pro?
It has been difficult for me to finally write this blog. I would rather talk about the Spring rains. Many sellers ask for a one percent commission reduction because it sounds like small potatoes. They do NOT understand that asking to discount commissions by a full 1% is actually a fee reduction of 33% . How many independent contractors can sustain a business by discounting their pricing by 33%? None!
Let me explain it this way: If you have six dollars (representing 6% commissions), the first three dollars (3%) go to the BUYER’s agent. That leaves the listing agent’s 3% or $3 for the Listing side. Of that three dollars, one dollar goes to the broker fees and their company for advertising (that benefits everyone) with corporate. In the case of Coldwell Banker, we are legendary for our commercial advertising. This is where that dollar goes. The second dollar goes to signs, lock boxes, ads, flyers, Facebook advertising, other social media, hosting open houses, meals for buyers, and endless other little things. The final 1% or one dollar is my paycheck. So, honestly, if you discount me by 1% (33% of the listing side) you are in fact taking my last dollar. So yeah I get a bit zealous when discussing commissions. I am good at what I do, and I need to get paid so I can continue to practice my skills.
So though this elephant in the room is a real issue, and I get that no one really WANTS to pay for the commissions, we (agents) are not making an hourly wage like most people. We are not working expecting to be paid by direct deposit in two weeks! We are INVESTING our hard earned money into your real estate transaction. We are actually saving money to try to put our personal funds into your dreams. I don’t mind it. I love helping my clients move forward. I expect to get paid for my expertise, but I am willing to wait. Like most professionals I do earn my fee.
Thank you for reading this and allowing me to explain a subject that is touchy for everyone, often misunderstood and really hard to discuss. Getting our commissions paid finally gets out into the light of day. Thanks for reading!