I hear this a lot. "I can't believe I am paying one person so much money." Let's say, for instance, you are paying $18,000 in commission (Oh, by the way, commissions are 100% negotiable) on your $300,000 house. Wow!! That does seem like a bunch of money. I would certainly agree that is too much for one person for that house price. But this is how it actually works.
First, commissions are not paid to a person; they are paid to the brokerage or company that you hire. The brokerage typically keeps a percentage of that commission and disperses the remainder back to your individual agent.
Second, that entire commission is not earned by one company. Commissions are generally "split" with the company who represents the buyer of your home. It is customary in Maryland that the seller of each home offers a commission to their agent and the agent who brings a buyer. That means that a portion, generally half, of the overall commission is paid to the buyer's company. That is why it always makes sense to hire an agent when buying a home. Your agent's commission is paid by the seller. Services for free!
Ok, so consider our scenario listed above. You have agreed to pay an $18,000 commission and, as we now know, only half of that will stay with your agent's brokerage. That leaves $9,000 for your agent and their company. Let's assume the agent has an agreement with their company to keep 50% of each commission. That leaves $4,500 for your agent. Doesn't sound bad, huh? Well, first you have to pay income tax. You have to remember, Realtors are all independent business people. Taxes are not automatically subtracted from "paychecks". Let's assume 33% for taxes, FICA, and other government withholdings. That leaves $3,015. Health insurance is expensive at around $250/mos.; leaves $2765. Since agents are all independent business people, all expenses are the responsibility of each individual. For me, personally, I spend about $3,000-$5,000 (depending on how many houses I have for sale) per month on fees, dues, subscriptions, advertising, office supplies, etc. etc. Let's say I spend an average of $4,000; that leaves negative $1,235. NEGATIVE!
Oh yea, I also own a house, car, like to eat food at least once a day and take a trip from time to time. Include personal expenses and I am way in the hole with one house sold. So as you can see, $18,000 very quickly turns into a negative number for an agent. Agents who sell one house per month generally don't survive in this business. Many people jump into real estate thinking it is easy and can "get rich quick". I can tell you, it is not easy and every penny earned is most definitely deserved.
Jim Ellis – Re/Max Elite Realty
Jim can be reached at 410.569.4663 or jim.ellis@remax.net.
