We real estate professionals sometimes have to remind ourselves that so many of our customers and clients (there IS a difference between the two, a topic for another day) really do not understand the compensation situation of most agents. Case in point is the next door neighbor of one of our North Shore Home Advisors. The neighbor is a college professor, holds a doctorate degree, and is a homeowner. Just today this lovely neighbor came to realize what it takes to make a living as a Realtor, after chatting with this member of NSHA.
So here's the scoop: the business model of most real estate brokerages sets the agents up as "independent contractors." What does that mean in the real world? It means there is no salary paid to the agent. None. Indeed, the brokerage and other entities are engaged in assessing multiple fees and other fixed costs (such as local multiple listing board subscriptions) against the agents. The cost of doing business for a Realtor is far from minimal.
Here's a pop quiz for everybody: when a Realtor represents the seller, the property sold for $300,000, and the sales commission agreed to by the seller is six (6) percent, how many dollars will that agent earn for the closed transaction?
Answer: (Choose only one answer, and don't peek below to find the RIGHT answer before you think it through.)
- $18,000
- $7,500
- $10,500
- $5,250 - $8,400
We know from speaking with people who are not in the real estate business, that most folks assume the listing agent will take home $18,000 when the transaction closes. We wish it were so. That $18,000 is, of course, six percent of $300,000. But that $18,000 must be divided among several real estate professionals: the listing brokerage, the listing agent, the buyer's agent, and the buyer's brokerage. The listing agent will actually earn (drum roll please) somewhere between $5,250 and $8,400. That is the gross paycheck. Now subtract income tax, social security etc, gasoline for the car, the Blackberry and cell phone and wireless network laptop service, monthly subscriptions to the local multiple listing service, dues to the state and national realtor associations, monthly lease fee for that fancy electronic lockbox "key" we all carry around, refreshments for open houses, annual errors and omissions insurance, health insurance, office supplies, and and and and and and...... You get the idea.
Yes, a successful Realtor can earn a good living. No, we don't take home ALL that commission check that the title company prepares for a closing. We just take it back to our managing broker so that it can be dispersed to the several individuals who took part in the transaction.
We are required to disclosure to our customers and clients exactly how we are compensated, and by whom. Sometimes there are slight variations on how this all plays out; each deal is different, as any agent will tell you. But you now know the boilerplate version. Any questions remaining? Please give us a chance to explain what is still unclear. We love hearing from you!
