Real Estate Commissions
Talking to Real Estate agents about commissions can be kind of… uncomfortable.
To discuss commissions with an agent can feel like asking them to hand over their paycheck for inspection and approval. It’s much easier to just swallow the questions and go with whatever the agent says, isn’t it?
But I know you still have those questions. And I care about helping you make informed decisions. I hate seeing people get manipulated or taken advantage of just because they don’t know the facts.
So let’s do it. Let’s talk about some of those burning questions about REALTOR® commissions.
What is the going rate for commissions? You won’t like this answer. It’s negotiable. One of the considerations is what competing sellers are offering as a commission to competing agents who may have a buyer for their property. In areas where properties frequently sell in a week, the commission my be lower than in an area where it frequently takes months. The main reason for this is that the longer a property is listed, the more it will cost the agent to market it. Those costs need to be reflected in the commission. I have personally charged as low as 3% for a family member (we still offer 2.5% to the selling agent) and as high as 7%. For the record, if I did not give birth to you, I will absolutely not list as low as three percent for you regardless of where or what you are selling!
Why do commissions vary so much?
There are a few reasons for the variation. One is local market. Other considerations are:
-What the agent offers. If no marketing is planned, the commission may be less. More marketing will cost the agent and need to be paid for out of their commission.
-Greed. Whether it’s wanting the high dollar (through a higher commission) or to get the most listings (perhaps through a lower commission), it’s a factor sometimes.
-Negotiation. Sometimes a client can negotiate a commission up or down to get the services they want. -There may be more than one person being paid to work for you. Some teams have administrative staff working behind the scenes that also get paid.
How much do Realtors Make?
Not as much as you think. The commission charged is shared between broker of the listing agent and the broker of the selling agent. Often it is shared 50/50. (At 5% that would leave the broker with 2.5%) The broker then pays the sales staff a percentage of that amount. That percentage varies depending on the office policies and agreements between office and agent. Most work on a commission split which can be as high as 50% of their paycheck! Subtract all the advertising and marketing expenses (professional photography, advertising, signage, etc.) incurred to sell the property. (This can range from hundreds to thousands of dollars)
Out of what’s left, the agent must pay mandatory licensing fees, franchise fees and, very often, they are also required to pay rent and fees to their broker. You know – office space, etc. Then there is just the everyday business expenses like vehicle insurance, car payments, phone bill, internet, fuel, office supplies, etc. Do the math. These kinds of numbers are why it’s a dog-eat-dog business. This is the stuff that sends a lot of newbies packing in their first year.
When all is said and done the Real Estate Professional may only net approximately 20%-30% of the gross commission collected at the end of the year. Hopefully that will be enough to cover the income tax payable to the government.
Are Commissions negotiable? Yes, but if you’re going to negotiate, I have three words for you. Do it carefully.
It can be risky to demand of and stomp on someone who you expect to work for you.
Not unlike offending the dentist with all the sharp tools in your mouth, or blasting the restaurant cook and demanding a new meal, making huffy demands is risky. What you don’t know about commissions – and the message they send to other agents – is dangerous to your deal.
Basically, if you’re going to negotiate, basically be respectful. Real estate agents are people too. And some of them really do have your best interests at heart.
Why should I pay that much just to have them sell it in a week? Review the answer to “How much do REALTORS® make?” Those numbers all apply whether the property sells in a week or 10months. The only difference is that the 10 months didn’t come by and eat up all the agent’s profits. Good for them. They got paid.
So did you. Go celebrate!
HINT, HINT, NUDGE, NUDGE…Perhaps it may be important to ask the question, “What services do you offer at that commission?” There is a vast difference in what services different agents offer at the same commission. You can pay the same commission to many agents but you won’t get 5 star service from all of them.
Don’t make the mistake of being so focused on how to get the lowest commission just to find out that you got no VALUE for the commission.
In conclusion, most Real Estate Professionals will charge you the same Commissions as the competitors. You can hire a rookie or an experienced agent for the same commission. It would seem more logical to look for the agent who will do the most work for their commissions.
Of course you will want to be sure that their work results in sales.
I will make it easy to ask us. You can request our digital pre-listing package ,otherwise known as a resumé, to learn about our services and qualifications.
Tina Plett, Sutton Group-Kilkenny Real Estate
Real estate agents facilitate millions of dollars in transactions each year.
And we get a cut from each one.
…So we must be rich, right?
By that logic, car salespeople, furniture sales staff, and the Tupperware lady must all be raking it in with the value of sales they make. After all, they broker thousands of dollars in sales – tens of thousands even – and get a cut from each sale! They must be rich.
But, they’re not.
I’m afraid we real estate agents are about as rich as anyone else in any other industry who earns a commission.
For some reason though, people continue to assume real estate agents are rich, and should give up their over-stuffed commission to benefit the little guy. (Which is apparently everyone else.) It’s bizarre. In no other industry I’ve worked, have I been asked to forego my earnings (translation: the deserved paycheck I worked hard for!) just because. But it happens in this industry – sometimes as casually as one says hello.
I recently received an email from a complete stranger, who immediately asked a favor. “I’m interested in one of your properties… can you help me with the down payment?” To clarify, this person was asking that I “help” by giving up my commission. This person I’ve never met was asking me to forfeit my paycheck. (Has anyone asked for YOUR paycheck after you put in the time?)
It’s a big ask, even for a family member who loves you dearly. To ask it of a complete stranger is beyond a favor. It’s downright offensive.
If you, like this person, assume real estate agents are too rich and just a bunch of greedy hoarders who for no reason at all owe you a living, then I guess you wouldn’t understand how such a request could be remotely offensive.
If you work hard for what you have though, and a stranger walked up to you and required your thousands of dollars just because they wanted it… I seriously doubt you would smile and fork it over just to be “nice”.
Well, reading that email did not inspire any nice thoughts. I imagined all kinds of things I could say to “educate” the person who sent it. But I know better than to open my mouth when I’m upset. Once I cooled down, I thought back to the days before I owned a house.
Saving up the down payment is about the most difficult part of buying your first home. It takes diligence, discipline, and a whole lot of work and time.
It’s hard. I get it. Been there.
That’s why I’ll write about how to build up that down payment in a future post.
Today, I just wanted to highlight once again that real estate agents are not some uber-wealthy race of robots whose earnings belong to the human collective.
We are your average working Joe.
We are your average mortgage holder.
We are you.
You’ve advertised your house For Sale By Owner.
Soon after, a real estate agent lands on your doorstep saying they have a buyer for you.
All you have to do is lock yourself into a listing contract, and the buyer will appear.
If you’ve ever agreed to sign based on that promise, you’ve also probably noticed that the elusive buyer never shows. Perhaps they conveniently changed their mind. Maybe they never existed. Either way, you’re left empty handed, wondering if signing was the right thing to do.
Ever been there?
You’re not alone.
It’s an age-old tactic agents use to acquire listings. People easily fall for it, so the method continues to be used.
“But what if they really have a buyer? I don’t want to miss out!”
It’s true, they may have a buyer for you. I let my buyers choose if they want to include private sales in their search. There are a lot of good agents who go to such lengths to seek out a property for their buyers. And they should be compensated for their effort. (No one likes working for free)
But here’s the thing – YOU certainly don’t need to fork over the entire listing with full commission!
Two Ways to Protect Yourself
You Can Offer the Agent a Fee Agreement for Bringing a Buyer.
You want to sell, they want to be paid for working.
Both are great and make sense. Neither requires giving them the whole listing though.
Offering a set fee for bringing a buyer assures them you won’t swipe their contact (and paycheck) away from them if they do bring a buyer.
It also allows you to keep your private seller status, and saves you the cost of a full commission.
Sign for Only That Particular Client, or for a Specific Time
If the agent really has a buyer, they’ll be glad to be paid a commission for bringing their buyer. They did the work, and should be paid. They will gladly agree to a fee agreement.
If they balk, you can have a pretty good idea that they’re after the listing, not trying to bring a current, existing buyer.
*Please note that if you sell your house with the buyer’s agent that the buyer’s agent is representing the buyer and not representing you as a seller. You will still be legally responsible for your representation and documentation.
Tina’s personal thought. “If your goal is to sell and someone wants to buy it, then sell it. It does not make sense to turn away a sale in this market.” Negotiate a fee and start packing.
And, as always, if you know someone who is selling privately right now, share this with them!
Help them protect themselves, and save them a load of cash!
Recently I spoke with a woman who wanted to list her home with me. But there was a problem. She explained that they had attempted selling privately. “We have a dilemma – we already have someone interested in our house.”
I said, “That’s not a dilemma, that’s an opportunity!”
Then I did what many other agents don’t.
I told her to name those people as an exclusion in the listing contract.
That means if those people end up buying the house after all, my sellers don’t have to pay me. (Of course, if they want to hire me to write the offer instead of paying the lawyer to do the paperwork we could agree to a fee. Not a full commission. That would help me recover costs for investing time and money on their behalf.)
If you want to list, but have buyers possibly interested already, use this technique with your agent! List those interested buyers as exclusions. You worked hard to get them!
Many agents will not mention this to their clients.
Some agents will be angry that I even told you about this technique.
But you need to know. There is already provision for this in the contract.
If you, or your friends or family members have tried private selling, and are now thinking of listing with an agent, please share this with them! They need to know too! It could help them potentially save tens of thousands of dollars!
Recently my boss, one of the founders of Sutton Group-Kilkenny Real Estate, passed away. As I reflected on the great employer he was, and all the things I appreciated about him, I remembered how I loved listening to him tell the same story over and over again about how Kilkenny Real Estate became a Sutton Group franchise. So I thought I’d share it with you.
Blaine Campbell was a bit of a rebel. Don’t let his friendly, helpful ways fool you – he was a forward thinking guy who would gladly rock whatever boat needed rocking if it was the right thing to do. How Sutton Group – Kilkenny Real Estate started, for example, had everything to do with bucking the system.
Generally, being a real estate agent comes with a whole lot of expenses. Office space and administrative staff are an expected cost. Back in Blaine’s day, it was also standard to pay high commission splits. No one ever questioned it – like gas or hydro prices, it’s just the cost of doing business. People just accepted the status quo.
Blaine wasn’t interested in status quo.
He knew there had to be a better way. He found three other like-minded agents to join him in his plan to break from status quo, and together they shared the expenses of office space and an administrator. Kilkenny Real Estate was born. Maybe that doesn’t sound earth shattering, but one does not typically get close and cozy with one’s competitors, especially not entrepreneurs, and especially not in a dog-eat-dog industry like real estate. It would be like Sobeys and Safeway partnering to share a building, office supplies and personnel, but still be individual, competing companies. It just doesn’t happen.
But he didn’t care. This was, to him, a logical improvement. Beyond logic though, he also believed that relationships in the work place should be built on honesty and integrity. When that happens, sharing goes smoother, and synergy happens. (Synergy is the proven idea that a number of people working together can accomplish more than that same number of people working individually)
Other agents heard about this new arrangement and wanted in. Lower costs? Trustworthy team mates? Synergy? Everyone wanted a piece of that. Blaine welcomed them. And more came. And more. … and more. Suddenly the office was filled to capacity, and then some. As demands on their office and staff increased, so did pressure. Synergy slowed, frustrations rose.
Something had to give. Blaine had to either send everyone on their way, and return to the small four agent arrangement or a big change would have to happen.
He then heard about the Sutton franchise. The Sutton pay structure was much like the original agreement between the original four agents. Basically Sutton Group frees the entrepreneurs to keep their income and decide how they want to run their own business. After all, we are independent contractors.
After looking into Sutton Group a little further they decided to go for it. “And you should have seen what happened then!” he told me one day, grinning. Oh, how his eyes lit up whenever he got to this part. The company grew hugely and quickly after they partnered with Sutton group. He never regretted that decision.
I love that story – it is exactly everything I love about Sutton Group-Kilkenny. Integrity, relationship, synergy, and especially freedom to steer my own money, and innovative thinking. It’s everything I ever wanted in a workplace.
And it gets better.
All that innovation and freedom was not just given to the agents, it was also for the administrators. I remember how Blaine told me one day, “The best thing that happened to the office was the day we hired Roberta Talmage.” She is the office manager now, but in her starting out days as administrator, she too had that innovative streak. Roberta created an entire new system of operations and had all the paperwork organized in record time. She didn’t mind changing everything if it was needed. I love that. And the relationship bit was there too. Blaine appreciated that he could rely on her, and that she was not only his valued employee, but also trusted friend.
Even after the huge business growth, Blaine Campbell humbly served his staff. He helped make the feature sheets, the Just Listed and Sold cards, and did all the printing and marketing for us. It was his way of staying in touch with staff. Even though his poor health kept him from the office in recent months, the business was his pride and joy.
I recently sent him a thank you email, and think it’s fitting to close with his humble, team-minded words.
“I’m fortunate to have the best people in the business running the office.
They are the ones who make everything great.”
I’m gonna miss him.
For some, as I’ve mentioned, Real Estate is a thrilling game – an exciting struggle for power, money and control. For others, the game is an infuriating blemish on an otherwise respectable industry. If you value people and justice, you are probably frustrated on a daily basis by the cheating you see. You probably also wonder if it is even possible to play fair among cheaters.
I want to encourage you – it is possible! I have survived right from my harrowing first year through to now, and my integrity is still intact. I have also had the privilege to discover others in the industry who care about fairness, and value people above transactions. They are out there!
How does one play fair among cheaters? There one simple (not to be confused with easy) strategy that will guard and strengthen you in this industry: Know your values and stick to them.
I know it sounds overly simple, (timeless truths often do) but this is the crux of it all. One compromise leads to more. It’s a slow burn. It might feel warm and cozy at first, but in the end it will burn.
If you decide resolutely that taking advantage of others is not an option, believe me – your integrity will be tested. You will wonder if it’s worth it. You might even try to convince yourself to make a bad deal because, after all, others do it and get away with it, and no one seems to even notice! But you will notice. You will know. If you stand by your values though, you will be able to look yourself in the mirror and like what you see.
A peaceful, clear conscience is worth gold, and it is achievable – even among cheaters.
…And, if you are that person of integrity, I want to know you! You are the kind of person I love doing business with!
Real Estate is a weird industry. Lots happens that would never fly in another industry. If we were all pizza delivery guys for example, the frequent yet acceptable peeve-offs would just not happen.
3 Things That Would Never Happen If We Delivered Pizzas:
1. Last Minute Cancellations
We have been summoned, and in a hurry. We pack our box, load the car, and race off. We dart through traffic, shake a fist at every red light, and hurriedly make our way there. We arrive, tires screeching, only to see another pizza delivery car parked in the drive. Confused, we phone the one who summoned us, to hear, “Oh. Yeah. Umm… I decided to get a pizza from somewhere else. I hope you don’t mind.” Yes. Yes, I mind.
2. Multiple Price Checks
While manning the phone between deliveries, a call comes in from someone with a low, drawling voice – not unlike Rocky – asking, “Yo. How much for uh – an extra large?” We quote, he hangs up.
Every two minutes thereafter, low and drawling calls back with a new question. “Yo – how about two larges?” “But what about three mediums?” “Is there a deal if we get garlic bread?” The poor man is clearly confused, so naturally – being great at customer service – we ask him how many people he is trying to feed. He assumes we’re prying, and refuses to answer. He continues to call though, for another twenty minutes. He never places an order. (We find out later though, that he is a regular customer of a competing pizza parlour.)
3. The Racey Strategy
A pizza order is placed, but with conditions. “I have ordered two pizzas – one from you, and one from your competition. Your mission, should you choose to accept it, is to race over here to earn my business. We will then hold a reverse auction on my doorstep. Fastest one with the lowest price wins. Ready? GO!” You resent being treated like a circus animal, but this is how pizza delivery guys are treated, so you dance.
Why this ridiculous behavior is par for the course in the Real Estate industry I may never understand. But maybe, with your help spreading the word, we can put a stop to this craziness.
If you know someone who is a Real Estate agent, please share this with them. At the least, they’ll get a chuckle and not feel alone. But they might also share it with their readers and maybe – just maybe – we can put an end to the Mission Impossibles and the Rocky’s who would have us jump through hoops like dolphins.
Whatever your business is – even if you deliver pizza – do you have this craziness in your industry? Share a story! Come on – we know you have some…
People have this idea that being a Real Estate agent is a high-paying endeavor. After all, the 4-7% an agent might charge, on a 250K property is a quick $10,000-17,500, so why not? At that rate, a person need only sell 5 houses a year to make a nice living. It sounds easy and profitable.
But that kind of monkey math gets a lot of people in trouble.
By forgetting to count the cost, they become either unprepared Real Estate agents, or clients who think agents should work for free. Allow me to debunk that a bit by telling you about my first year in the business.
I had taken all the courses, had outlined my goals for year one, and was ready to begin. From my first day on May 1st to the last day of December that year, guess how much I made. I’ll tell you my expenses were $22,000 for that half year. From what, you ask? Licensing, office fees and supplies, MLS fees, advertising, fuel for the thousands of miles I drove, and the list goes on. These expenses were deducted from my income. Which was zero. In my first year I sold absolutely nothing. By the end of year one, I was in the hole $22,000. Not exactly the fast track to riches.
What kept me going when all seemed lost?
The reason I got into Real Estate was to help people. I did not get into Real Estate to get rich. I wasn’t in it to burn piles of money either – I did mean to make an income. But because money was not my primary goal, I was not deterred by the lack of it. Neither was I “just trying it out” as many do. I wanted so badly to help people find a home, I would have done it for free. And, I did. Maybe that sounds crazy. But it’s really what I’m passionate about. It’s my favorite part of this job, and worth every frustration.
What we love, we are willing to do
even in the face of opposition or great cost.
If you’re new to the Real Estate game, and it feels like it costs $40 to make a dollar, I understand.
If it feels like talking to a brick when trying to wheel and deal with the old pros, or you question your sanity for having chosen this job, I want to encourage you with this.
Pursue your passion. Chase what you love.
If you do that, all the confusion and hardships and tough times won’t matter as much, because you’ll be pursuing your passion, and that will propel you forward.
What challenges do you face as a Real Estate agent?
What is the passion that drives you forward during tough times?
Commission negotiation is a touchy subject. To the Real Estate agent, negotiating commission can feel like begging for a paycheck. To the buyer or seller, it can feel like a shell game. In the hopes of clearing the air and maybe even helping smooth the process, I offer these negotiation tips.
Commission Negotiation Tips
How You Go In Is How You`ll Come Out
Go in as a warrior, and you`ll get a war. Go in haughty, and you`ll be the fool. Go in as a beggar, and you`ll get crumbs. Don`t let greed cloud your judgment. Instead, try approaching the agent like you would an acquaintance or friend. Basically, treat them like they`re human, because they are.
Master BOTH Communications
Be personable, and communicate your needs clearly. This part may be easier for you than the second part, which is to then be ready to hear the agent`s needs. Speak, but also listen. Hearing what they have to say will give you clues about what kind of person they are, their motivations, level of service, and also help you understand what you can expect from this particular agent.
Know These Key Things
No matter what you`ve heard, be aware that:
a) each agent sets his own commission. Offices do not have a house standard – it`s actually illegal to plan together what your commissions will be or state there is such a thing as a standard commission. Anyone who says otherwise is either tricky or dangerously ignorant of the rules that govern their industry. Either way, avoid those people.
b) Commissions are not a simple number. Agents consider many factors when deciding what commission to work for. How long something will likely take to sell is a huge consideration. (Agents`expenses continue as long as a listing is active – the longer it`s listed, the more it costs the agent). Other considerations include things like what the marketing plan might be for your particular property, expenses to be covered like driving long distances for showings, etc
(This graphic illustrates just some of an agent`s expenses – just in case you were wondering )
Interview Several Agents
By interviewing several agents, you get a feel for what range of commissions you can expect for your area and property. You can also begin to identify which personalities, skills and characteristics each agent offers, and which best suits you. Here`s a piece I wrote on how to interview them.
These tips will go a long, long way to help you negotiate in a way that gets you the best deal, the best service, and hopefully also the best agent. This is the way to strike up a mutually beneficial relationship that you`ll both enjoy.
In the past, I have been asked –as a condition to a sale – to reduce my commission.
Think about that for a second.
In order to make the price more affordable for the buyer, I should forego my wages? I am constantly baffled by the widespread belief that a Real Estate agent should somehow work for free.
I wonder how that theory would pan out in a different industry. Let’s run that scenario, shall we?
I sit down in a restaurant and order a meal from the menu.
I understand what is offered on the menu, and can ask questions and make adjustments. I can request off-menu specialties like ‘Does this come in a half-order?’ and ‘Do you have that in available in whole wheat?”
We discuss terms, reach an agreement, and I await my order.
After I’ve consumed every tasty morsel, the waitress brings my bill. The bill includes a mandatory 15% tax and 15% gratuity. I agree to pay the bill as long as the gratuity is waived.
She expected that fee as promised by her employer, but that’s not my problem. I view the gratuity as optional- an extra. And why should she get paid extra? Her wages, I decide, are enough for her to live on without exorbitant ‘extras’. When I became an expert on her finances is none of her business. She owes me in a way. I could have gone to any restaurant in town, but I chose this one. She should be thanking me for being a customer at all. And I don’t need to explain that to her either, since it’s none of her business anyway. I want to pay less and that’s all that matters. She should really wipe that annoyed look off her face before I decide to take my business elsewhere…
If that logic makes you want to throw something, congratulations – you have common sense and are aware of the needs of those around you.
If that logic makes perfect sense to you, then I suggest becoming a waitress. Or a Real Estate Agent. Or a missionary. Or any number of professions where one is expected to work and then not get paid.
Thanks for reading.
Remember to tip your waitress!