Our colleague Margaret has addressed clearly why Realtors® charge what they do. Read on, and see if your questions have been answered. If not, give me a call and we'll talk more about this.
During a real estate career that goes back to 1998, I have more than occasionally been asked (confronted, challenged)) with the notion that we agents make too much money. It's easy for buyers and sellers to think that when they get the HUD at closing and see those commission numbers. Particularly for sellers since the amount comes out of their proceeds.
Most listing agents (and I'm primarily discussing the selling side here) will respond that the costs involved in marketing are substantial. Marketing consists of many components: photography, brochures, ads, postcards, internet syndication, floor plans, social media content, open houses, etc.
So I agree that marketing is expensive but real estate commissions are based on more than the outlay for marketing and advertising. This pie is made up of at least ten parts:
- First, we offer a "compensating commission" to the agent's firm representing the buyer. This split varies across the board, but often is close to half of what you are paying in total commission. The buyer's agent obviously needs to be paid for their efforts in selling their client your home.
- A full service model brokerage offers you just that. We do everything for you and only ask that you keep the house clean and available for showings. A complete marketing list is too long for this blog, but I'm happy to send it to anyone who requests it.
- As real estate brokers, we bring years of marketing know-how, pricing help, and negotiation skills. We bring all this expertise to you, yet we might work for you for four, six, eight months, and if the house doesn't sell or you pull it off the market, we are not compensated. The same goes for the buyer's agent who may show 20 properties over a weekend just to have the buyer cancel his move. This happened to me last year. I do not get paid when that happens. Think carefully if you know someone who works for free.
- Consider that my firm, Baird & Warner has innumerable systems in place to help you sell your home including a website that has been rated #1 for three years in a row. That is not free. Your agent (in this case, me) has 17 years of experience and over $100 million in sales. My contacts and relationships in the local real estate market are invaluable. None of these things are free and have taken much time, effort, and money to implement.
- We have monthly and yearly costs associated with our business. There are fees for access to the Multiple Listing Service, for membership in the National Association of Realtors, the Illinois Association of Realtors, and whatever local board we belong to. We must pay for license renewal fees. If we use a secure lockbox for you home, as I do (a Sentrilock key box) we must pay for that.
- Our brokerages charge a fee commonly called a "desk" fee. This includes Errors and Omission insurance, office supplies, utilities, training, office space, software, technical assistance,office assistance, centralized showing service.
- Continuing education and working toward advanced designations (of which I have four) is costly. Real estate brokers must take continuing education to keep their licenses, but advanced designations help us with niche markets, new technology, or keeping abreast with ethics and fair housing.
- Most real estate brokers need to have websites in order to advertise themselves, their properties, their communities, and so forth. These can be very high-end or fairly simple but all have costs upfront and monthly maintenance costs including IDX fees. Without smart phones or iPads, we would be hampered every day in our efforts to help our clients. These are are major costs in our budgets.
- Time. Our time spent in helping you complete a successful sale of your home is considerable. Conversely, that same amount of time could be spent with no ensuing sale. We spend time on everything discussed in this post as well as time viewing houses, time driving buyers around, time negotiating, time consoling, time advising, time blogging, and hopefully, time celebrating!
- And more. Vehicle wear and tear, gas, property sign riders, property domain sites, unique URLs, business cards, photo sites, sponsorship of local events, client gifts at closing, health insurance if a spouse doesn't have it, Chamber of Commerce membership, and networking costs.
Real estate brokers are 1099s, or independent contractors. We perform our jobs while absorbing all the costs involved, then get paid only when and if the job is completed. Money spent out-of-pocket will stay out-of-pocket until we sit at the closing table with you.
Real estate commissions are negotiable - every deal is unique. Negotiable, yes. But too high? I hope I've debunked that perception.
Margaret Goss - Winnetka and North Shore Real Estate Broker
Specializing in homes for sale in Winnetka, Wilmette, Kenilworth, Northfield, Glencoe, Glenview, Northbrook, and Evanston.
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