Real Estate Agents Get Paid Too Much!
Though I've practiced real estate for a little less than two years, I come from a family of real estate agents in the Dallas area. I can say that there is good reason that people have reservations about working with an agent. This is partly due to the lack of understanding people have about what we do.
Today I'd like to talk about real estate commissions since this seems to be at the top of everyone's list when searching for or selling a home. What do you think is a fair commission, 1%, 2%? The typical commission rate is 3%! Outrageous, right? Are you sure? Agents usually either represent the seller or the buyer. If and when a home closes (plenty of road blocks to keep this from happening) each agent will receive 3%. So on a home that sold for $200,000 in Plano, the commission to each agent’s brokerage is $6,000. Sounds like a lot doesn't it? Well, this is not the agent's share. The commission check is sent directly to the broker i.e. Covenant Realty, Ebby Halliday, Keller Williams etc. and the company takes a percentage of that check. This can range from 30% to 50% of the original amount of $6,000. Let's take the brokerage’s split in the middle of those two numbers at 40%. Of $6,000, the brokerage receives $2,400. The remaining $3,600 goes to your agent in which they pay taxes of roughly $750 dollars. Of the remaining $2,850 this money will go to pay off marketing and cost of business expenses. To be conservative, these expenses cost me about $500 dollars a month not including time or gas. So, take out the cost of these things, I am depositing $2,350 into my checking account. When I go back and divide this by the typical 35-40 days it is taking houses to close at present, this works out to a daily rate of $58.75 not including the time spent on finding a home. So, typically the average rate of return is going to be in the 1% to 1.5% range.
I apologize to the people that look at math with insufferable disdain for putting you through this. I hope this math lesson is a little more valuable to your understanding of real estate then Biz. Calculus might have been to you in college for any reason. I still have nightmares of the growth rates of x in relationship to the velocity of y.
Lastly, on the subject of commissions paid. I was recently asked at closing by a friend I was working with if I receive any money from my relationship with the mortgage broker I referred to him. I'm glad he asked it because it gave me some introspective on what is going on in the minds of the people I'm serving. Fortunately, the answer is a resounding NO. In the state of Texas, the only money we receive as agents is at closing for our work and that is placed on the settlement statement. We do not make one penny more off of who we recommend in any shape or form. Our goal in referring business to our business associates we trust is to be able to hold them accountable, so your service can be the best all the way around. The reality is, usually the easier it looks on the outside of a real estate transaction for the client, the harder your agent is working behind the scenes. I still remember the busiest day I had last year where I had either made or received 83 phone calls on that given day! I’ll save that story for the next newsletter!
Provided by Covenant Realty Corporation.
If you have any questions please contact us.