Profile picture for BrianJohnDavis

What a real estate agent really worth?? Shouldn't we pay these folks based on effort and time?

In this market, we may lose $ when we sell our home, but do we we really need to pay 2.5 - 3% to each agent for the pleasure?  I understand that they have some value, but if they spend 40 hours on the process, should they reap $35,000?  I'd like to negotiate with my potential selling agent(s)....any ideas?
  • May 10 2010 - South of Market
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Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

 
 

Answers (26)

What most people fail to realize is that a real estate agent does not set the commission based on what they will do specifically for you. They attempt to make an amount that will sustain them through all of the work they don't get paid for. Most agents show houses day after day, put in some offers, but usually only seal the deal on a very few of those. It is a full time job just to make 3 or 4 deals a month. There are many expenses that come out of the pocket of an agent. Especially with smaller firms, the agents may have to pay for advertising, fuel, etc.

Also consider another reason for the commission amount. Incentive for another agent to show and sell your home. If you have your home listed at a low commission rate, an agent representing a buyer may overlook your home and sell their buyer another home because the commission is higher.

If a home sells for$100,000  with a 6% commission The commission is split sometimes 50/50 between listing agent and selling agent. That means the listing side gets $3000 and the selling side gets $3000. But that is not where it ends. Most brokerages take from 25% to 50% of that number. At 50% your listing agent would only receive $1500. Out of that is the stuff I mentioned before such as advertising, fuel and don't forget association dues such as the local MLS and Realtor association. If you was to calculate how much an agent makes per hour if they only sell 1 or 2 homes a month. It would probably be closer to minimum wage. Bottom line is that you pay for someone to find a buyer for your home. The commission is not the problem, if your agent can't sell your home. Fire him/her and hire someone else.
  • March 07 2012
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You are the client, you can say no to this broker and negotiate an amount that you feel is "fair".
Best of Luck to you.
  • November 24 2011
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Realistically, the percentage is split between various entities. Buyer's agent, listing agent plus the Brokerage firm. When all is said and done, my 3% is actually 1.5% in various cases.

Also, depending on the value of the home, fees are adjusted accordingly, but yes, fees can be negotiated, however there is a minimum which can not be breached and then again, how well will that agent work for you for that fee? It really depends on a variation of components whether it's feasible or not.
  • May 16 2010
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Hi Joseney21,

Following is a cut & paste of my response to why leaving out #7 is a problem for a Broker.

***
Item 7 is kind of hard not to include. I believe the majority of people will stick to the deal and not take advantage of people, but there are always some that might give in to the temptation of letting the listing expire and then contact a buyer that put in the offer. That condition is to reduce the appeal of that temptation.
 
Perhaps, modify item 7 to:

7) if seller sells to any person or their relative that submitted an offer during listing period then seller will pay listing agent 1.5% of list price fee irregardless of whether another listing agent was signed up.
***

So, reducing item 7) to this way should be a fair compromise.

By the way, cute doggie.
  • May 16 2010
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Profile picture for joseney21
I understand this is hypothetical but i dont see why #7 would be a problem if it was totally left out.

At the moment we have a system where agents, inspectors, mortgage brokers and appraisers are all connected and may go behind a buyer's/seller's back to get their money (not necessarily the in the best interest of their clients).

Having a system where a seller could contact a buyer only shows compromise on that side and it would be between two strangers.
sounds like it would be a better system without #7
  • May 16 2010
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If I were in your situation, and the broker implies that it is a done deal.

I will ask him to go for 4% and be willing to settle for ~4.5%, especially if he does not need to split with the company.

Since you mentioned the word potential, I assume you are still interviewing. It might be a good idea to let him represent you for this one single deal only, make it clear in writing that you may sign up with another agent and he is only for this one buyer. That way you can continue to interview other agent and select one based on objective analysis, not on a potential easy deal.

If you selected another agent based on his/her merits, then word the listing contract such that they are exclusive for all except that one buyer the broker claims to have.

I wish you good luck and successful sale. 
  • May 15 2010
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Profile picture for sunnyview
You are the client you can negotiate. You just need to be sure that you do not compromise too much professional service in the process. It is a balance, but I think it is smart to negotiate it before you list.
  • May 14 2010
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Profile picture for BrianJohnDavis
My potential agent is a broker & wants to represent both sides, so his cut would be 5% of total sale ($35,000)
  • May 14 2010
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You obviously have NO idea how it all breaks down.
The agents doing all the work wind up with a pittance.
The way you spell it out, is not even within the realm of reality.
  • May 13 2010
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Hi Workabee, ouch! your stings are still as sharp as ever. But, the sad thing is some of your observations are valid. 
 

Hi Hpvanc, it was an interesting discussion and I will keep it in mind. Perhaps 3 years down this path (if I am successful and persist in this industry), I might give this some serious thought as a basis for operation. In the meantime, my current focus is on learning and preparing to "walk" first.

Call me naive, but I aspire to be a different kind of sales. I intend to fully carry out the part about due deligence, utmost care and client's interest above all else in my transactions. That will be part of the value that I intend to add to their sales/purchases. In return I expect full commitment and a fair compensation.

:) Don't start with what fair is, everyone have different standards. And I don't want to get a sting from Workabee.

Nice meeting you, take care and see you around zillow's Q&A.

  • May 13 2010
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Profile picture for workabee
If you paid agents on effort and time, many would get paid very little. As it is, they get no less than 3% even if they're seat warmers left over from the bubble.
  • May 13 2010
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Profile picture for hpvanc
David,

I'm not selling,I was just theorizing and attempting to draw it up a compensation plan that is similar to other professionals that agents are continuously trying to compare themselves to.  I see now that your rate per hour was 1/2 price, or even less.  I think if agents do want to be recognized as professionals by the kind of professionals they like to compare themselves to, they will need to improve their individual reputations to the level that they can charge most of their fee for services rendered as evidenced by clear value, instead of insisting they have to be compensated like a used car salesman.

The current compensation structure attracts the worst kind of people, and then brings out the absolute worst in them.  The fact that you are even willing to consider an alternate arrangement shows that you are willing to listen and challenge the accepted mantras, which is a mark of a professional that drives improvement.  I don't work well in my own profession that don't believe the bad reputation charges against us have no merit and should not be admitted and addressed in public with our customers.

I work in a technical professional services area, I've worked as both a W2 and 1099 at different times.  I currently am W2 with a company that does not have sales reps, while that is exceedingly painful for me when I have to go out on prospecting expeditions, it has served us very well in an economic environment.  Most of our business is still walking in the door.  In the last recession I worked for a company that had a very large and aggressive sales staff and completely imploded in a minor downturn.  What I am trying to get across is if you are primarily sales, you really aren't adding value you are just closing deals whether they are good or bad for the parties involved.
  • May 13 2010
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Profile picture for real estate mike
pay $50 to an agent, I don't care. Maybe some homeless person in your neighborhood still has an active license....
  • May 13 2010
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I think going to a flat fee with a performance bonus, brings this kind of transaction to the Zip, Redfin or flat fee brokerage level.

It will be extremely hard for you to find a strong professional willing to take that kind of listing. As was in my original response, a strong prefessional in any industry know's his worth. They will not put in half-hearted effort for half fees, if they do then I question their professionalism.

The way I framed my conditions is what I view as a fair way to address length of listing exclusivity and "lock in" period, not on total fee. If you work out the hours and cost, it will still come out to about 5-7%.

I wish you good luck on finding a strong professional willing to take a flat fee + bonus. But if you ever consider what I proposed as feasible, you can send me an email after I get my license.
  • May 13 2010
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You can always use a discount broker like Zip or Redfin. They are not full service brokerages. if you are willing to put in some work yourself that might be a great solution. As always, you get what you pay for. Realtors don't get paid by the hour and only if they can close the deal. All the time and effort and marketing they put in up front is on their expense. Just think about it this way. Only the best can survive because they sell properties. I wish you best of luck with finding the right match for you. Tanja with My Team SF

  • May 13 2010
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Profile picture for erika.hansen

I think that you would find in interviewing agents there are many out there that will stick to their fees however ones that maybe don't have to split with their company are able to do some negotiating. It really does sound like your looking for more of an al a carte type service of that of a flat fee broker.

Good luck!

Erika

  • May 13 2010
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Profile picture for hpvanc
"Item 7 is kind of hard not to include. I believe the majority of people will stick to the deal and not take advantage of people, but there are always some that might give in to the temptation of letting the listing expire and then contact a buyer that put in the offer."

I see that point, and it still needs some refinement.  It is a performance bonus, and you would have to vary it based at least partially on the % or dollar value that is set when you negotiate the listing contract. 

What I am seeing is something like a  flat fee type arrangement with a performance bonus.  If I were negotiating it, the performance bonus would be no more than 1/4 to 1/3 of the potential total compensation.  That way I have to be extremely careful that I am not hiring an agent that will let me list with unrealistic expectations.
  • May 13 2010
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Hi hpvanc,

Some of those are good suggestions, that I would agree to.

Item 7 is kind of hard not to include. I believe the majority of people will stick to the deal and not take advantage of people, but there are always some that might give in to the temptation of letting the listing expire and then contact a buyer that put in the offer. That condition is to reduce the appeal of that temptation.
 
Perhaps, modify item 7 to:

7) if seller sells to any person or their relative that submitted an offer during listing period then seller will pay listing agent 1.5% of list price fee irregardless of whether another listing agent was signed up.

Anyhow have a good day, thanks for letting me think on this interesting idea. I will keep it in mind.

  • May 13 2010
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Profile picture for hpvanc
I would agree to it with some minor refinements except for item 7.  If you were paid like a professional based on fee for services, you do not have cause to come back and collect a percentage of the sale at a later date.

As to the refinements, a kick out clause on item 1 for buyers negotiating a different percentage to only pay up to 2.5%, or allow for nothing if the buyer has an alternate compensation agreement with their own agent.  Item 2, this one is not a deal breaker, I would prefer it was a menu list with set prices for services, although I'm guessing some would prefer the hourly rate.

Of course you can still offer the traditional model along side the alternate model for those that prefer it.
  • May 13 2010
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That is an interesting proposal, I will keep that in mind and may try it out after I get my license and hit my goals.

Just for discussion's sake (as I don't have a license yet), if I want to work with you at what you suggested. Then the following will be conditions that I I will request:

1) 2.5% comission to buyer broker/agent (This part you are stuck with)
 
2) Depending on my results at that time, I will charge $30 or more per hour for all activities (excludes specific that are not allowed by law) to list and sell your property. The clock starts ticking the minute I qualify you as my client.

3) i) open house charge is 3x hourly rate
   ii) marketing/caravan charge is 3x hourly rate

4) Seller responsible for all advertising, marketing, closing, and legal costs

5) Extra performance bonus of 1.5% of list price if sold in 6 weeks

6) At end of 6th week if no open negotiation ongoing, seller can cancel listing without any consequences except 7.

7) if seller sells to any person shown property during listing period then seller will pay listing agent 1.5% of list price fee irregardless of whether another listing agent was signed up.


During the 6 week, the arrangement is exclusive. I will not waste my time or resources on an open listing or any semi-exclusives.

I am extremely curious, will this be something that you can agree to?



  • May 13 2010
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Profile picture for BrianJohnDavis
Seems like I should be able to pay for results.  That is to say, if they can get asking price or above within a short time frame they would get paid a premium. But if they were under-performing, I would like to easily move on to another, more effective agent.  Why do I need an exclusivity agreement?? Shouldn't I give all the able-bodied agents a chance to earn some money?  
  • May 11 2010
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Hi Brian,

It is your home, your equity, and you can negotiate the fee you want to pay with any agent you choose.  Some agents won't budge on their fees but others will if you ask.  I would make sure that no matter who you choose, make sure that they are trustworthy.  They need to have great communication and marketing skills.  Find an agent that loves what they do and getting them to agree to a lower fee, won't bother them at all. 
 
Good Luck and I wish you all the best with your home! 

Tamara Dowd.
Real Estate Broker
  • May 11 2010
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Forget what kind of "market" we have. The bottome line for any seller is what do you need to do and what is your time frame to do it? Why does anybody want to sell in a down market? Because they have to.

People sell for many reason ie: baby is due and we need more space, empty nesters who have more house than they need, job change out of state, divorce, staying ahead of a forclosure, etc. Only a fool would sell in a down market if they just don't have to.

Many sellers just don't want to deal with calls from strangers at all hours. Some don't want to pay out for marketing or even know where to start. Many sellers realize their time is worth more than the effort required to market and sell successfully. For those others, please do it yourself if you can.

Brokers never charge a comission, we earn it and I mean every penny, every day. After we get the check we give half to the cooperating broker then bring it back to our brokerage where the principal takes thier cut. We then put aside taxes and expenses. We may ultimately wind up with no more than 1%-1.5% of the selling price if we're lucky.

How many folks out there would like to work for months before getting paid then seeing the money get parsed out to others before getting the remains! No sympathy needed here but remember, we earn our money every day and we bring sellers kicking and screaming all the way to the closing table just for their tepid thanks at the end of the day.
  • May 11 2010
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Profile picture for hpvanc
So you as agents are basically saying that people won't pay you what you believe you are worth based on a fee for services model?

I know it hasn't been brought into to this thread yet, but when you try to compare yourselves to professional, nearly all of them are paid based on fees for services, and the ones that have proven the greatest competency are able to command the higher fee that a meritocracy allows for.  My question is why do agents have such a low opinion of their services that people won't pay them unless have a contract to collect a percentage of the transaction, isn't it the services themselves that add the value, that allow the transaction to be closed.  Often times the closing bad transaction debases the value of those services, but if the agent doesn't close they don't get paid, so the incentives are in the wrong place.
  • May 11 2010
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I agree with everything David says below. And in addition, please realize there are also expenses that the agent has to pay out.  In order to provide my clients with top service for listings, I pay quite a bit for marketing, to ensure the property gets full exposure.  I also pay someone to handle the paperwork (which consists of many many hours), so that I have more time to handle showing the property, following up with buyers, and negotiating the transaction.  Also need to pay brokerage fees and other MLS dues.  

Good luck!

Richard Schulman
Keller Williams Realty
  • May 11 2010
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It depends, from my past transactions and the people I know now that I am going to start in this career. The quality and professionalism of the agents varies a lot.

I would say that about 10% of the agents are the ones that are worth every penny and more. Look for the ones that are financially secure and have a drive/desire to sell the house/get the listing or help you find a house. Also, I believe in long term relationships, hence look for ones that you can work with over your next 10 years.

Avoid the ones that are financially insecure and need the sale to make the next mortage payment. They try to do their best, but it is hard to balance between personal needs and client need at that situation.

The bad news for you is that the stronger agents do not negotiate their fees too much, because they believe and know the value of the service they provide. They also have a strong client base and tend to have more than 3 actives consistently.

If reducing fee is critical for you, then you would either have to go with a lesser agent that may or may not be good. Or a new agent that has the potential to become one of the top agent.

Otherwise search out for flat fee base or just do it yourself.

Good luck!
  • May 11 2010
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