Sales commissions are important to the real estate agents. That’s how they put the bread and butter on the table for their family as they don’t get a regular paycheck at the end of the week or month for their services. The amount of commission they get is tied to the property price and these agents, at least the good ones, are bound by ethical commitments to do everything they can to help their clients. Unfortunately, not all agents are willing to go an extra mile to provide better services to customers and because of that the consumers, especially millennials, have started asking if the services provided by agents are truly worth it.
Great real estate agents are truly worth their commissions. Investing in right agent means that you won’t be making the rookie mistakes costing you money, time and most importantly peace of mind. Agents take care of numerous things during a transaction to ensure that the deal is closed and is favorable for buyer or seller, depend on who they are representing. Coordinating with service providers affiliated with the transaction such as inspectors, lenders, and surveyors; repairmen hired to make the property transferable, and landscapers preparing the property for a showing or open house are a few things that they will have to tackle to earn their commission. But let’s see if the commission you pay them is that big of a deal.
Breakdown of Real Estate Agent Commission
Commission is a certain percentage of the sale price that goes to real estate agents involved in the process. It can be anything from 1% to 6%. This percentage is negotiated between the homeowner and the real estate agent at the time of listing. Usually, the commission is paid by seller rather than the buyer. However, in some cases, buyers also agree to pay their agent for representation and advocacy to receive better services.
The commission is what drives agents to do more for clients. Some agents might lower their fee to get the listing, but the services they provide will be in line to what they get at the end. The size of the commission is usually dictated by local custom, and is a set percentage of the sales price of the property being sold, regardless of the work performed and the ease or difficulty of the personalities involved or the complexity of the deal.
Agents have tons of expenses that they have to incur just to be in this profession and stay competitive. This expenses include license fees, MLS dues, National Realtor fees, phone, traveling, training and so on. To get a customer, they first have to invest in marketing their services from their own pockets, which means printing flyers, website hosting, email software, calling software, CMAs, etc. Some agents also hire an assistant to make the real estate journey smoother for their clients.
Complexity of Sale
Some real estate transactions are straightforward. Some are not. The commission you pay to your agent does not take into account the personalities of people involved in the process or the complexity of sale. Buyers and sellers often don’t realize that just like the process is taxing for them, it might be the same for agents. Because agents do this for a living, having a good agent on your side would save you much frustration in buying or selling process. The primary motivation for agents is always the commission they would get; that’s the fuel which drives them to do more for their client. Negotiation with agents on the commission is fine, but at a certain point getting them to drop their commission even lower would hurt you instead.
No Sale, No Commission
Agents don’t get paid for the hours they put in. Their efforts to buy or sell the property and the time they spend with you means nothing in monetary terms. It’s only when you find the right house or sell the property that they get paid. Most agents would be as invested in this process as the buyer or seller. Great agents would be able to sell the property for a much higher price than if you tried to sell it yourself and that basically means more money for you, regardless of the percentage of the money you have to pay the agent.
This is what you are paying for. Their understanding of real estate market will help you in your journey to buy or sell a house. You might not know how much your house is worth or how you can add value to it before getting the professional opinion from the agent. From the processes involved to legal documentations, agents can help guide you through that. What’s more is that you can leverage their professional network for various services, like property appraisal, staging, repairs, maintenance, etc.
Money is what motivates people and real estate professionals are the same. The real estate agent commission model might not be perfect but it is one which has served society and the economy, well, almost as long as there have been homes for sale. Until a different way of determining compensation on real estate transactions can be adopted, today’s commission scheme is based on an agent’s commission being calculated as a percentage of the price of the property being sold. You might have had the fortune to work with a great agent or you might have suffered because of a bad one, that’s something which is present in every industry.
Sales by real estate agents which are compensated by commissions have a better ROI than sales which have no commission tied to the performance of the real estate agents who have brokered the sales. Money is what makes the world run and the less money you pay to your agent, the less value you will receive. As buyer or seller, you should look for a good agent to represent you but also understand that the commission you pay them will be equal to the value you get through their services.