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Where Does Your Real Estate Commission Fee Go - Why is The Commission so HIGH?
Many who have bought and sold properties through Realtors numerous times; even many real estate agents themselves, don't know where the commission money goes. After all, when a property sells for hundreds of thousands of dollars and the commission is tens of thousands of dollars, it seems like there is a terrific amount of money charged as commission -- and there is. Even many attorneys, who have spent a decade or more in expensive colleges, fought to get through the Bar exam, and then spent years in their profession -- seem concerned that the commission fee is far larger than the attorney fee when all the fees are paid at settlement. Let's start with the part that few real estate agents understand. It costs the real estate company they work for, between $19,000 and $45,000 per year for each agent to have a license, desk, and the use of company building, parking, real estate, taxes, insurance, utilities and professional support services -- whether they sell anything or not. Since the real estate brokerage commission is split between the company and the agent, an agent must make three to six thousand dollars every month in commissions for the company to break even on that agent with the company share of the fee. And, most importantly, the less productive agents in the office raise the cost for everyone. The other agents therefore, must each earn more to carry the share of the less productive. Many agencies will ONLY allow high quality, top producing agents to work at the company, so that the less successful agents don't pull down the average income of the company investment. The total commission is split between the listing company and the listing agent ; and the selling company and the selling agent. Usually the commission is split four ways, sometimes it is more. Splits are arranged within each company and for each agent; sometimes there are numerous different percentages and split arrangements in each office. The company part of the commission is spent on office rent or mortgage, taxes, property insurance, maintenance, signs, radio and TV advertising, bill boards, magazine and newspaper ads, cleaning, supplies, phones, paper, desks, utilities, legal fees and legal insurances, management and support staff as well as numerous memberships, dues, legal fees and expert professionals. Many companies also pay a fee to a franchise company or home office for the right to use the company name. Fees are also paid to regional and national home offices to defray national and regional advertising, management, staff, etc. In the final analysis, an office that has 10 licensed agents must require those agents to bring in at least forty to seventy thousand dollars in commissions every month to keep the office bills paid!!! I don't know any real estate agents who actually understand or believe this, unless they have personally been responsible for office expenses for a year or more. Responsible, meaning writing the checks out of an account that costs THEM money. Even then it's hard to understand how it all adds up to such a huge figure, but it does. Offices that earn less than these amounts per agent are disappearing fast, few remain as it is. Computer purchase, maintainance, training and software expenses are now one of the larger expenses. Many offices feel squashed financially, by the financial pressure of adding the purchase of computers, printers, digital cameras, and the maintenance, networking, repair, software and constant management of computers to the already high cost of doing business. In fact, there are even a few of the larger companies who specialize in purchasing other real estate companies who can't keep up with the expense and responsibility of this digital age. Any company or agent who is not keeping pace with digital realty and digital real estate, is not likely to be around much longer. More and more people rely on the Internet to pre-shop for real estate. You know that. You are one of them and we welcome you to our site. The purpose of our Web Site is to allow you to educate yourself and pre-shop for real estate before you call us. Let us know if you want us to have anything else on our site for you. We'll listen! As the Internet becomes the favored tool it is also the most important tool for buyers -- radio, print and sign ads become less workable. Smart sellers now want to see what a Realtor is doing on the web before they choose which Realtor to list their property for sale with. Advertising and marketing expenses have grown tremendously over the years. For instance, when I first got into the business, thirty years ago, I started out helping to manage a real estate, building and developing company. At that time, over 60% of our phone calls came from signs on the property. Also at that time, bulk mail cost an average of thirty cents a piece to create, print, post and send and our response rate was often 3% or more!!! Now less than 10% of our calls come from signs on the property. Bulk mail averages over a dollar a piece and mail response is far less than half of one percent. In fact according to one national Realtor's marketing research team, real estate mailings now range in response from one in a thousand to one in three hundred. The best results costing the most to obtain because of expensive mailing pieces with full color, pictures, etc. One recent survey showed that average cost per resonse to a mailing was $2,000 - whether it was a lot of cheap postcards or fewer nicely printed color pieces. Since 1971, I have studied and researched marketing and sales via schooling, reading and keeping good records of expenses and results. Thirty years ago the average cost of newspaper advertising to get a phone call was seven dollars. One in every ten calls coming to a top agent, resulted in an appointment. One in five appointments resulted (for a top agent) in a sale! Of course these were averages based on the best advertising, telephone and selling techniques that were available. Often the averages were not as good in other companies or for other agents. So the average cost of a sale using just print ads was about $350 thirty years ago. For my office of 50 agents in 1979, the average print, signage and bulk mail advertising cost had risen to $500 per call. Now the average cost of one phone call from a print ad is from two thousand to five thousand dollars and that is growing by the month! So even if one could get one in ten calls to result in an appointment, and one in five appointments to result in a sale, the cost of advertising per contract would be phenomenal. The nicer the property, the more attractively priced it is or the better it is located the more response the ad will get. Luckily for print ad salespeople and newspapers, few Realtors keep records of what advertising costs and results are. Singage is still a factor in obtaining calls and used to be the most cost effective. Therefore many Realtors will seek to get a listing in a hot area, no matter what the listed price, just to get a sign on the property! Can you blame them? Print ads are done mostly to please the seller. After all the seller wants to see something tangible as proof that the Realtor is spending some money before that big commission is paid out at settlement. We certainly can't fault them for that either, can we? Interestingly enough, those sellers who price their property highest for what it is and who are located farthest from where the most buyers want such a property, are quite often the ones who most want to see their property advertised expensively!!! In the case of an overpriced property that is not well located -- thousands of dollars can be spent in advertising with not one phone call resulting! It's just part of our business and always has been. Ironically those sellers who have property priced the highest for it's location and want the most advertising, are often the ones who want to pay the least commission too. You may find this all unbelievable! It is! I've been doing this business all my adult life, going to courses every year, working in the business in many parts of the country as a property specialist -- and I still can't believe the costs and conditions of this business. I am amazed every day by all this! Each company pays their agents differently but the overall or gross commission as it is called is split in some fashion between the company and the agents. The expenses are split too. The most productive agents usually get a larger split of the commission, relative to the company. Some companies offer top agents the right to rent office space, usually at least twenty thousand dollars a year, and keep all the commission! And, top agents almost always spend a far larger percentage of what they earn for advertising, marketing, education and other business expenses that are designed to bring them future sales and income. The best agents, the best ones for the seller to have, are those who do everything possible to let all the rest of the Realtors in the area know everything possible about the property they have for sale so that other Realtors can try to sell it too. When two Realtors from different offices are involved in the sale the commissions are split in half again. Typically each of the two companies involved would split the commission and then each of them would split with the agents involved. Often there are other commission splits payable as well to a referring agents; an agent who referred the listing or one who referred the buyer. To give you an idea of what all this means, when I averaged all the commissions I made over the last several years I averaged three quarters of one percent of the sales price for the properties I sold - BEFORE expenses! Now you can see why we all try to sell millions of dollars of property each year! In most areas there is another expensive service that the companies and the agents use -- the Multiple Listing Service or MLS. This is where all the agents have agreed to put everything they have on a centralized and searchable computer so that all agents can have access to all properties. Once you choose your Realtor that person can access everything in the central computer files if they are a member of the MLS. Some of the smaller companies are not members because of the cost. From the proceeds of commissions earned by the sales and listing agents, they then pay for their auto expenses, MLS fees, annual county, state and national Realtor dues, commercial licensing fees, business licenses, electronic lockbox keys, advertising, insurance, legal fees, computer related expenses, phone bills, etc. In the final analysis a Realtor who sells two million dollars in real estate a year is usually working diligently and effectively for his clients for only average earnings in area where she lives after all these expenses. And there are others; client gifts, professional dinners and luncheons, Chamber of Commerce dues, and numerous charities who consider that Realtors are the most likely to donate heavily to all the charities... since they have so much money. Selling Real Estate is a life style and profession most of us would not trade for anything. And there are some of us who have made a nice living over the years at this wonderful job. It's all about helping others. If we do it well, we are paid well, and if we do it very well we are paid very well! Happily I have been working as a Realtor since 1972 and I LOVE it. May we help YOU? We hope so! And, we hope to get paid when we do! Copyright 2000-2005 by www.JodyHudson.com Jody Hudson has been a Realtor in America and in Delaware for 35 years. The source page for this article is: http://www.kate-jody.com/essays/commissionfee.html
MORE RESOURCES: Experts predicted Minnesota real estate agents would quit, 5 INVESTIGATES found a different reality 5 EYEWITNESS NEWS Altadena’s rough real estate market: Slower sales, lower prices, lottery winner plucking up properties Los Angeles Times Real estate magazine reports Les Wexner as Blue Heron buyer The Martha's Vineyard Times Real estate expert warns socialist mayoral candidate could trigger massive NYC exodus - Fox Business Canadian psychologist Jordan Peterson sets up shop in the Valley, records show The Business Journals Bedrock flexes its real estate portfolio to grow Detroit's tech ecosystem - Crain's Detroit Business Bedrock flexes its real estate portfolio to grow Detroit's tech ecosystem Crain's Detroit Business Office real estate wide open in Denver as vacancy rate hits 36 percent Colorado Public Radio Vail Valley real estate inventory is on the rise VailDaily.com NAR Real Estate Forecast Summit National Association of REALTORS® Real Estate Partners Dollar Tree Let's Talk Business: June residential real estate sales lagging, heritage grants and more Pueblo Chieftain A New Perspective: Here Comes the Groom | Real Estate Insights Piedmont Exedra Boston Real Estate Times Unveils 2025 Excellence Award Winners: Honoring the Visionaries Shaping New England’s Future Boston Real Estate Times Dawson County weekly real estate transactions, July 18 Central Nebraska Today State lawmaker joins Westport commercial real estate brokerage as vice president Hartford Business Journal Private Credit Surges in 2025 as Real Estate Developers Bypass Banks The World Property Journal Real estate news: Senior apartments in Tustin sell for $83M; Fullerton Metrocenter snares $118M Orange County Register 5 Essential Tech Tools for Real Estate Agents National Association of REALTORS® New York Housing Market Trends 2025: Is the Tide Turning for Buyers? Norada Real Estate Investments Los Angeles Water & Power commits $100 to real estate debt Pensions & Investments Today’s Mortgage Rates: The States Offering Lowest Rates – July 18, 2025 Norada Real Estate Investments Property management with an owner’s mindset J.P. Morgan Corcoran McEnearney Announces Evan Lacopo to Lead the Number One Real Estate Office in Alexandria, Virginia Alexandria Living Magazine SRS Real Estate Partners Arranges $4.53 Million Ground Lease Sale of Walmart Property in Deltona, FL citybiz Real Estate Market Report (June) highlandscurrent.org Licking County real estate transfers for June 30-July 4 range from $200,000-$14.6 million The Newark Advocate Banner Real Estate Group Breaks Ground on 334-Unit The Faywell Multifamily Development in The Heart MultifamilyBiz Bridgemarq Real Estate Services® Declares Dividend Yahoo Finance Moon Becomes Next Real Estate Frontier, NAR Reports Higher Foreign Investment In US Huntsville Business Journal CBRE Announces Strategic Leadership Appointments Across U.S. & Canada Advisory Business Boston Real Estate Times Gravelle advises on current real estate market in Grant County Columbia Basin Herald Frederick Ford, real estate executive and first Black Union League Club president, dies at 98 Chicago Tribune Mapletree Sells Sun Belt Warehouse Portfolio to EQT Real Estate for $241M Commercial Observer Operation Pawssible: Greenbrier Humane Society gets a boost from local real estate company Mountain Messenger GenesisM Breaks Ground on 154,000-Square-Foot Biomanufacturing Facility in Bedford, MA Boston Real Estate Times AGC MA Announces 5th Annual Building Advancement Externship to Bridge Educators with STEM Construction Careers Boston Real Estate Times What's the most expensive property sold in Rhode Island? July 18 real estate transactions The Providence Journal The Pipeline: Commercial real estate roundup for 7.18.25 Richmond BizSense LOCAL REAL ESTATE TODAY 7.18.25 KQEN News Radio Home Buyers: Stop Freaking Out After the Home Inspection National Association of REALTORS® Home Buyers May Have Accepted a New Norm on Rates National Association of REALTORS® Tips on spotting real estate investment opportunities and avoiding risks, from experts at GR Property Group Community Impact SRS Real Estate Negotiates $4.5 Million Sale of Walmart-Anchored Property in Metro Orlando Shopping Center Business Miami-Dade’s self-storage surge a boom for real estate IslanderNews.com Hunt Companies Acquires Controlling Interest in Carter, Strengthening Real Estate Development Platform Business Wire Stage Point Europe Launches Its RWA Token $SPET, Setting it up as a Bridge Between Crypto and Real Estate Morningstar Top Stocks for Real Estate Investment Elite AI Stock Forecasts - Massive wealth growth Jammu Links News New plans unveiled for Water Street’s second phase Tampa Bay Times July Economist Snapshot: What Will the Big Beautiful Bill Mean for Commercial Real Estate and Housing? Urban Land Magazine Vend Leans Into Verticalisation As Real Estate Revenue Grows 11% In Q2 onlinemarketplaces.com Is Apollo Commercial Real Estate Finance Inc. a good long term investment - Explosive market performance Jammu Links News Vendor & Real Estate Partners Dollar Tree Wood County Recorder reports on second quarter real estate activity BG Independent News Development Services Offers Online Early Assistance for Commercial Real Estate Projects Prince William County Government (.gov) Real estate sales in Jefferson, Bullitt and Oldham counties for Jan. 2-5, 2025 - The Courier-Journal Real estate sales in Jefferson, Bullitt and Oldham counties for Jan. 2-5, 2025 The Courier-Journal Drake Real Estate Partners closes largest fund yet after pivoting to institutions Private Equity Real Estate | PERE Real Estate Transfers ~ June 25, 2025 The Bedford Citizen Choice Properties Real Estate Investment Trust 2025 Q2 - Results - Earnings Call Presentation (OTCMKTS:PPRQF) Seeking Alpha Real estate transfers: Lake Township condominium complex sells for $5.61 million - Canton Repository Manitowoc's real estate transfers include a sale of nearly $1 million to Riverside Dairy Herald Times Reporter Real estate office transforms into collection center for donations being transported to Kerr County kens5.com |
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