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Real Estate Salespersons Can Get Paid in a Variety of Ways - 2007-05-19 |
Most folks know that real estate agents get paid by commission, but beyond that, many people consider the dollars to be a mystery. Here are some common questions about real estate sales professionals and how they get paid:
Q: I am thinking about selling my house, and I have talked to several agents. Each has asked for a commission of 6 to 7 percent of the final selling price. Where does that money go?
A: Typically, commission dollars are split into a number of pieces.
If the listing agent works for one of the large conventional real estate firms, they are likely under an employment agreement that calls for commission dollars to be split between the agent and the broker.
Often a new or inexperienced agent will agree to a 50-50 split with the broker, then hope to move up the percentage ladder as their sales increase over time. It is not unusual for top producing agents to negotiate commission splits as high as 80-20 or even 90-10, with the larger amount going to the agent.
In some brokerage firms, all agents begin each January on a 50-50 split, then the agent progresses through a laddered series of increasingly attractive compensation levels. Such an incentive program tends to attract and retain high volume agents.
Q: If the buyer is working with an agent of their own, how does she get paid?
A: This is the more common situation, with a listing agent working for the seller, and a selling agent who introduced the buyer to the property. This is called a cooperative sale, or simply a "co-op." Here the selling company usually gets half the overall commission, while the listing company gets the remaining half. Then each individual brokerage firm pays their licensed agent based on their employment agreement.
So it would not be unusual for a commission to be split into four parts, with portions to the listing broker, the selling broker, the listing agent, and the selling agent.
Q: What can an agent do if they want to move beyond a commission split, and keep the whole commission?
A: The first choice might be to qualify for a brokers license. Once an agent passes the broker's exam, he or she can open their own firm and set their own commission rates. This was the typical path for successful agents in Georgia until about 30 years ago.
Q: What happened then?
A: The 100% commission concept became popular and agents began moving to non-traditional brokerage firms in large numbers. Perhaps the best known of these firms is ReMax, which pioneered the concept in the late 1970's.
Many ReMax agents pay a monthly fee to their broker, perhaps in the range of one thousand dollars, and then get to keep 100 percent of the commissions they earn.
Q: How does an agent decide which compensation arrangement is best?
A: It's up to the individual agent to decide what's best for them. Some agents prefer a higher level of support and services, and prefer to pay for it through a portion of their commissions. Others feel they are able to generate their own customers and clients, and may not need as high a level of broker services. In their view, they come out ahead by paying a monthly fee and keeping all their commissions.
Q: Are commissions set at 6 to 7 percent?
A: No, real estate commissions are independently negotiated between the listing broker and the seller. However, it is important to know that brokers are free to set a minimum commission that agents in that firm may accept. Likewise, every seller is free to accept or reject any commission arrangement with which he may be presented.
Q: What if I don't want to pay a percentage commission? Can I compensate a real estate agent in any other way?
A: Yes, you are free to negotiate a specific dollar amount for the services you want to receive. This is commonly called a "flat-fee" listing arrangement. Consumers are fortunate today in that real estate brokers now offer a variety of services and service levels. The lowest cost of these services often places the house in the local multiple listing service and puts a sign in the yard. The seller is then responsible for all showings and open houses.
For additional fees, owners can hire agents to conduct open houses, place a variety of advertising, and handle all contacts with potential buyers. As the service level grows, the costs typically rise. As I said earlier, most traditional full-service brokers expect to receive a commission in the 6 to 7 percent range.
Q: How can a seller know what arrangement is best?
A: If a seller has little or no experience at selling real estate and time is short, it's most likely that seller will need the highest level of assistance from a real estate professional. In contrast, if you have sold homes in the past and have plenty of time to get a contract, there is likely no harm in trying a discount broker.
Many brokers offer a variety of service levels and fee structures, which allow a seller to choose which level of service he wishes to employ. Be sure to talk with agents from several firms to find the right combination for you.
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