Understanding Realtor Commissions
Business Financial Management

Understanding Realtor Commissions

This has been kind if an educational week for me. I was learning about how these real estate agents determine how much they should get paid for a sale. It caught my interest because I saw this real estate company that apparently charges only about $5000 to sell one’s home and you know it is normally way more expensive than that.

In a nutshell, I was told that a common scenario is when you sell a home a real estate agent charges about 7% on the first $100,000 and about 2.5% on the rest. So a $200,000 home for example would mean a fee of about $9500. Essentially, 7% of the first $100,000 is $7000 and 2.5% of the next $100,000 is $2500.

Now as you know there are normally two real estate agents involved. One for the person selling the home and one for the person buying the home. With the example above, that $9500 is actually split up between the two real estate agents assuming the transaction is complete where in this case the both of them would take $4750. As the real estate agent that is selling a house, a person was telling me where that is essentially like a way to attract real estate agents with buyers to come look at the house like a fishing bait.

Let’s look at a scenario where a real estate agent will sell your home for say $5000 where the house is similarly valued at $200,000. Here, basically both real estate agents will essentially be only getting say $2500 each in commission. So think about that where you are the real estate agent trying to help your customer find a house to buy and you need to introduce houses to them. You want to make as much money as possible. You see that at max you can get $2500 in commission for one house and $4750 for the other. Are you going to be inclined to show your client the house with the lower commission fee? Imagine if you are getting into more expensive homes worth like $800,000. Big difference in commission rates.

That’s what can happen essentially where because a real estate agent wants to make more money they will take the initiative to avoid showing you houses where the commission rate won’t be as great. The only way you will find out about those houses as a buyer is if you do the research yourself say online and want to see a specific property. As a seller it could mean less exposure since other real estate agents are trying to avoid you and as a buyer it could mean missing potentially good buys because of this commission rate politic.

Honestly, for myself I always assumed these types of rates were like some kind of requirement. But after hearing this it’s more like one of those anything is negotiable scenarios. In some ways it reminds me of a system access fee mentality for a cell phone where before I assumed it was like some kind of mandated fee that a carrier must charge to the consumer.

At this day in age with like the Internet the process in finding a home should be a lot easier and more accessible for the average individual. It’s one of those things too where the commission rate fees haven’t really changed too much despite of this. Another thing that I did learn with the people that charge cheaper commission rates is that they say you will personally be responsible for paying any type of marketing fees in selling your home. Something to factor in if you were debating who is the best to go with where ultimately you will have more money in your pocket.

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