Q: How much does it cost to hire a REALTOR?
A: A Realtor’s® compensation is 100% commission based and they do not receive ANY pay for the work they do until a sale is made and escrow is closed.
The seller pays commission to the listing agent through escrow and it is usually divided in this manner:
– The buyer’s agent is the party who will bring the prospects/buyers. To encourage agents to do this, typically 50 % of the commission is paid to the buyer’s agent ( typically, 3% for a residential property).
– The balance (typically, 3% for a residential property) is paid to the listing agent. – The listing agent is the one who aggressively advertises and promotes your home, helps you choose a competitive asking price, determines a profile of buyers, coordinates opportunities for agents and buyers to view your home, negotiates on your behalf with potential buyers and coordinates the preparation of all the necessary paperwork until the sale is closed. Whew!
A percentage of the listing agent’s cut is paid to the agent’s broker as part of the office ‘split’. This covers the Broker’s overhead expenses, brokerage advertising & insurance (in case we get sued).
Q: Sooooo (scratching head)… if I am looking to buy, I don’t pay any commission to my REALTOR?
A: Correct! The buyer does not pay commission – it comes from seller’s side of the deal so go ahead and hire a REALTOR to help you find a property and, more importantly, represent & negotiate for you in your real estate transaction.
Confused? Lets break it on down.
If you are looking for a house to buy, the commission is paid by the seller from the proceeds. For example, on a $200,000 house, the seller would pay 6% commission of $200,000 which is $12,000. Typically, the seller’s agent would receive their 3% which is $6,000 and the buyer’s agent would receive their 3% which is $6,000.
Now if you are selling then you will do what is called a “Listing” which is basically a contract you sign to have an agent market your house. The agent will list your house for a typical 6% which is divided as described above when the sale is complete. The entire 6% will come out of your proceeds as the seller and so oftentimes when you list you increase the price you are asking a little bit more to compensate for the commission.
Q: So…. if I am looking to sell my property, why would l want to pay so much commission? Won’t my REALTOR list for less than 6%?
A: I am more than sure that somebody will list for less (we call these discount brokers), but you get what you pay for meaning you’re squeezing your REALTOR tight and now they have less funds to spend on marketing your property which means less exposure which translates to more days on the market for you. But lets look at another important side of the story that often gets overlooked. What effect does this have on YOUR property versus the other listed properties on the market?
As a buyers agent, if you have a client looking to spend, for example, $100k on a new house and you have 2 listings, 1 gets you 3% & the other gets you 2.0% which one will you show first? Which one will you encourage your buyers to buy?
As professional, ethical REALTORs who take our jobs very seriously, we are ALWAYS going to show our client both properties and keep their best interests our priority all day long. Unfortunately, that cannot be said for all REALTORS out there. A lot of agents are very coin operated and want to GET PAID so they might not even show their client the property that only pays 2% commission. And if it comes down to their client making a decision between 2 properties to put an offer in on, we have seen them sway the buyer towards the property where they get paid more.
Moral of the story is pay your agent what they are worth so that they can do their job in its entirety and avoid getting skipped over by other agents and their buyer pools.
As always, we’d be happy to assist you in buying or selling property. Please give us a call! 806-367-8334
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