Hey, there. If I look a little sheepish, it’s because I’m planning to cover a topic that makes some people a little uncomfy: money. Specifically, a real estate agent’s commission. The topic itself comes with a whole host of questions, each of which I’ll try to answer, at least as well as I can, here in this video.
We’ll take these things one at a time, nice and slow, because the answers are important to helping you make decisions. You deserve to know all the bits and pieces so you make the best choice for you and your family…and your bottom line.
First up: how much does a REALTOR make? Even this, the simplest of the questions, isn’t really simple to answer. The commission for selling a home is split between the selling agent and the buying agent. And something you should always keep in mind: This fee is NOT set in stone. It’s actually illegal to tell potential clients that a certain percentage is required. You can negotiate the percentage paid to the selling agent and the buying agent; you can even designate a flat fee. As long as everyone is aware of the fees and agrees by signing the contract, you’re set to go.
For the sake of this video, let’s say your agent is asking for a 6% commission to list a house. Just for a minute, let’s break down where those fees go. Like I said, it’s split, so that’s 3% to the Buyer’s agent, and 3% to the Seller’s agent. A lot of agents must work with a broker, who in many cases takes half of their fee. If they represented only the buyer or the seller, then their 3% fee quickly becomes 1.5%.
When you think about what a REALTOR makes, don’t think about that 6% in the contract. You have to dig down to that 1.5% (or whatever you guys agree on together) so that you have the most accurate number in place as you contemplate the rest of your questions.
To break that down into real-time “monay,” let’s sell a house real quick, okay? Pretend I’m a real estate agent… (glisten eyes).
Okay, so I’m the seller’s agent. We’ve listed the house for $450,000, and the sellers have agreed to pay 6% in commissions. That’s $27,000—if we sell for at least the list price, which usually happens in Nashville.
Do I make $27,000? Yes! I mean, no. I don’t. I’m just the seller’s agent, remember? I get half of that, so $13,500. That’s still a nice chunk of change, don’t get me wrong. Except, I work with a brokerage, who’s got to collect their fees too. Remember, some brokerages take half the agent’s fee – that would bring me to a grand total of $6750 for selling the house.
Okay, so that brings us to the next awkward question: What does a REALTOR even do to deserve that $6750?
I’m so glad you asked.
Interview you to understand needs and specific circumstances
Perform market research
Create a Comparative Market Analysis to find the right price point for the home
Stage the home
Place the For Sale Sign
Perform walkthrough video
Post property to the Multiple Listing Service
Create a specific property website
Produce virtual tour
Pay for ads, brochures, and direct mail
Host open houses
Coordinate with surveyors, home inspectors, insurance agents, appraisers, mortgage companies, title companies, and other real estate agents
Negotiate with buyers on terms and prices
Handle multiple offers
Protect you from any potentially damaging terms in contracts
Attend the closing
Supervise final walkthroughs
You might have caught a quick moment where I mentioned paying for ads or brochures, or even direct mail fliers. That may have brought up one final question, which is: What else does a real estate agent pay for?
To be honest, quite a lot. That $6750 that I earned off the sale was probably mostly spent before closing day arrived. We have a lot of everyday expenses to take care of even before we sign the listing agreement.
These regular expenses are things you might think about on occasion, if something brings it to mind, like—”oh, yeah, he probably has to pay errors and omissions insurance”. Then there are company dues, office equipment, ongoing training, REALTOR association dues, gas money for showings, money for hosting websites. Blah, blah, blah.
Once that listing agreement is in hand, then we start paying out of pocket for a whole lot of things in order to make sure we sell your home. We’re the ones paying for the professional photographs of your home, the dedicated website creation and hosting—and don’t forget the design and development. Then there’s the virtual tours, and the social media ads, all in the name of getting your home in front of as many eyes as possible.
So, yeah. That’s what a REALTOR does to earn their commission. If they do all these things, and you all—buyers and sellers and agents together—end up unscathed and generally happy on the other end of the transaction, then you can be fairly confident that your REALTOR did everything they needed to do in order to truly deserve the percentage or flat fee they agreed on in the beginning.
I hope this has been helpful, if not a little bit uncomfy. Let’s talk about something else now. What’s your favorite song?