Where do the fees go?
Real Estate Agent's fees vary from country to country and even region
within a country. UK Agents might earn 2% on each sale, Australia 4% and
the USA 6%. Regional variations mean that there is no "standard
rate", especially in the USA.
In the USA, some Brokers are beginning to charge a fixed fee for
specific services, allowing home owners to select from a menu of services.
Sometimes these Brokers ask for a portion of these fees to be paid
upfront, before a sale is made.
With Brokers that charge a fee based upon a percentage of the price the
home is eventually sold for, the range of services provided varies
enormously. Even within the same Brokerage, some Agents are more thorough
than others, providing a wider range of service to their clients. The
quality of service you receive as a seller is largely dependent upon the
sales experience of the Agent and not the Brokerage. This makes it very
difficult for Sellers to differentiate between Agents based solely on the
percentage they charge for their services or the Brokerage they work for.
An Agent charging 6% will not automatically provide a better service
than one charging 5%, but they may. To fully understand this, it will help
to have a quick lesson in where the fees go.
In the USA, most licensed salespeople are independent Agents,
not actually employed by the Broker. The Agent gets paid only when
they sell a home either for their own Broker, or for another Broker as a
sub-agent.
One of the benefits of using a Professional Salesperson to sell your
home is their ability to attract buyers that are already working with
other Agents in your area. Your Salesperson can do this by offering to pay
other Agents a percentage of the commissions you have agreed to pay your
Agent's Broker. This is often known as the "co-broke fee".
MYTH #2: Agents get paid whatever you agree as a percentage when
you list a home with their firm.
Reality: The Agent gets a fraction of the amount you agree to pay the
Brokerage, depending upon their Agency agreement. For example, if you
agree to pay the Agent 6% on the sale of your home, the 6% is divided like
a pie between the Listing Broker and the Selling Broker.
The listing Agent (sometimes the Listing Broker)
determines what percentage the Selling Broker will receive. Lets assume
the split is 50/50, so the Listing Broker will get 50% of the 6% (or 3%)
and the Selling Broker will get the same.
Each Broker determines how much their Agents receive based upon their
Agency agreement. At some Brokers, the Agent may get as little as 30% of
the Broker's commissions, at others, they may get 100%.
In this scenario, if the Listing Broker pays their Agents 40% of
commissions earned and the Selling Broker pays 50%, the Listing Agent
would receive 1.2% of the sale and the Selling Agent would receive 1.5%.
This is illustrated below based upon a $100,000 sale with a total fee
being agreed at 6%.
In companies where the Agents are paid a higher
percentage, the Agent will typically have to deduct their marketing
expenses (e.g. advertising, direct mail, printing, gas, payroll for
assistants, etc) from their share of the fees, with the remainder being
taken as income (and being taxable).
Because of the way the fees get split, many Agents (and
Brokers) try to both list a home and sell it themselves, allowing them to
receive both halves of the commission income. Unfortunately, this does not
always get the best deal for the sellers. The best Agents for sellers are
those that actively try to sell your home by working with other Agents;
that is how they attract the most buyers.
Why a lower percentage is not always better for the
Seller
There is an interesting side-effect of the splits on commissions: by
negotiating a lower commission, you are lowering the amount the broker is
able to pay a sub-agent (selling Agent) for selling your home to their
buyers. The lower the sub-agent fee, the less incentive their is for
Agents to sell your home to their buyers, especially compared to other
homes with higher percentages where they can earn more money. Conversely,
offering to pay a higher fee provided it is split with sub-agents will
give a greater incentive to all Agents to sell your home.
| Home Investor Tip
Brokers fees are always negotiable.
Don't simply go for the lowest rate or you may be disappointed
when your house does not sell; instead, negotiate for more
services to be included in a rate that is more typical of Agents
in your area. |
|
The difference between a Real Estate
Professional and a person selling Real Estate lies in the understanding of
the sales process, the buyers, and, fundamentally, the ability to close a
sale.
