What Does a Real Estate Agent Do to Earn Their Commission?
Are real estate agents really worth the cost of their commission? What do they really do that is worth what they earn when they successfully sell your home? If you do choose to list your home with a Realtor, how do you make sure you aren’t overpaying?
Let’s find out…
Real Estate Agent Commissions
Realtor commission rates are one of the big issues home sellers have when it comes to choosing how to sell their homes. There is this automatic impulse many people have that tells them that Realtors make too much money, cost too much money and are far too overpaid. So, some try to find the cheapest form of ‘help’ or think they can save by buying or selling a home themselves. Of course, others, including most wealthy home sellers and big funds who invest in prime real estate automatically use a great Realtor every time, without hesitation, even if they know how to do it all themselves.
So, what’s the deal? How much do Realtors really make? Are they worth it? If so, how can you get the best deal on one?
What Does a Realtor Do?
One of the reasons this is such a sticking point and mental block is that most home buyers and sellers really have no idea what Realtors really do. Perhaps most agents have done a poor job of conveying this as well. The general assumption is probably that a buyer agent just shows you some properties online, maybe takes you out of a Sunday afternoon drive to look at them, and then tells the seller how much you are willing to pay. If that’s it, then of course most home buyers are going to think they can just do it themselves.
So What exactly are Realtors doing ?
A Day in the Life of a Realtor
Here are just a few of the things the average real estate agent will have to do in a regular day:
Answer an enormous number of emails and voicemails
Attend City and local meetings
Spend several hours actively marketing, finding buyers, cold calling, placing new ads
Lunch with prospective clients
Drive around showing multiple houses to potential buyers
Schedule and meet for appointments with property inspectors, appraisers, surveyors, contractors, insurance agents, etc.
Update all buyers and sellers, mortgage companies, title companies, insurance agents, appraisers, closers, HOAs, bosses and team members on status of deals
Get involved in solving critical issues with title, appraisals, inspections, loans and the city
Run deposit and closing checks to the bank, broker’s office and title company
Run comps and value properties
Present offers and field purchase offers
Host open houses
Negotiate new offers and contracts
Get contracts signed as well as all disclosures, and deliver to all parties
Spend time on mandatory continuing education
Respond to new inquiries by phone, email and on all social media networks
Coordinate real estate closings
Attend closings in person
Preview and help stage homes for sale
Supervise repairs and contractors
Stay current on the local, national and global real estate market, mortgage trends, and economy
Update all clients and parties to transactions
Handle regular bookkeeping, legal document storage and compliance requirements, deal with taxes, and hire, manage and train any assistants
Manage website, update MLS and online listings
Remember that this is not just a 9-5 job. Agents must be available after hours , 7 days a week, and 365 days out of the year. If they even slack on returning a voicemail for several hours on a holiday there is a good chance someone is going to file complaint.
Realtor Tasks Involved in Selling a Home
The above is really just the tip of the iceberg and a very brief view of what a Realtor may have to cram into every day. Now here are some of the tasks they’ll specifically have to do to sell an individual home after all the extensive education, training, years of experience and marketing to get in front of home sellers.
Interview you to understand your needs, goals and circumstances
Research the market, pull comps, and create CMAs to pinpoint the best price for your home
Preview your home
Consult on how to prepare your home, staging and preparing sellers for the process
Discussing pricing and listing strategy
Preparing net sheets
Gathering all the signed documents and disclosures
Entering the property into the MLS, and posting on hundreds of online channels
Real estate photography and video
Creating ads, brochures, and mailers
Calling potential buyers and pre-qualifying them
Promoting and hosting open houses
Driving potential buyers to view your home
Coordinating with surveyors, home inspectors, insurance agents, appraisers, mortgage companies, title agents, other Realtors
Presenting offers on your home
Negotiating terms and prices, and handling all the paperwork
Managing the transaction daily with many other parties until it closes
Attending the closing, reviewing paperwork, supervising walk-throughs and exchanges
Handling after sales care for the new buyers
Most valuable of all can be acting as a legal buffer to protect sellers from legal liability and malicious lawsuits. They put themselves on the frontline so you don’t get sued for making mistakes.
Remember, this is after months of learning and training, and thousands of dollars invested in All before getting a shot at selling a single house. Most don’t really becoming a Realtor. get into a smooth swing of it for several years. 90% don’t make it past 12 months because they simply do not make enough money to afford to keep going with all their expenses.
How Much Does a Realtor Make?
It’s obvious a Realtor actually has a lot more work to do than most realize. So, how much do they really get paid for all of that?
We often hear the standard or rate for selling a home is 6%. Well, that Realtor commission gets split between the buyer and seller agent. So, typically your agent would get 3% at the most. At most brokerages and franchises the bulk of agents will be on a 50% split. That means their company keeps another 50% of that 3%. Now they are down to 1.5%.
Out of that 1.5% of the sales price they can have a lot of other expenses:
Errors and omissions insurance per transaction
Company office dues
Office overhead (rent, computers, software programs, chairs, etc.)
Vehicles and gas
Realtor association dues
Mandatory ongoing training
MLS access
Website hosting and maintenance
Phones and phone service
Marketing expenses
Assistants
Printing, mailing, courier services
Taxes
Accountants and tax prep help
Bank fees
On a $100,000 home sale, all of these expenses come out of a gross $1,500 commission (1.5%). Selling just 1 house per month probably isn’t enough to just cover these expenses by a long way. It might take 24 houses a year, just to have a marginal profit.
Many of these expenses an agent has to gamble on or take the risk of investing in upfront for each client, without any guarantee of a successful and immediate sale.
This is why the average agent probably barely makes minimum wage. The National shows the average agent makes a gross income of just Association of Realtors data$42,500 a year, or less than half as much as their average home seller client.
If you did all that, would you feel you are being over or underpaid? Is it even a risk you’d take yourself?
When buying a home it doesn’t really cost you anything to use a Realtor. In fact, if you don’t, you are throwing away all the free help.
When it comes to selling, no matter what the value and importance of using a licensed professional, it can still seem like a lot of money for you. Especially if selling a higher end, more expensive property. Can you still get some savings? Because, let’s be honest, it’s not your fault how little agents really get paid.
As with any other service – you often get what you pay for. You don’t want less
service, you want more. You want just the right level of service for your needs
in your specific situation. All for a competitive and fair price, right?
It never hurts to ask for a discount. Just know when not to nickel and dime
them to death and do yourself a disservice in the process.
Summary
Agents do a lot. They take on a lot of risk and hard work for you.