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A Real Estate Agent Dishes the Brutal, No-Holds-Barred Truth About His First Commission

December 17, 2019

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Anyone who’s ever hired a real estate agent to help them buy or sell a house might wonder: How do agents get paid—and how much?

I had that same question when I decided to embark on a career as a real estate agent in San Francisco in 2017.

Being a real estate agent seemed like a glamorous and highly profitable job. I had visions of cashing huge checks as I brokered deals on gorgeous properties with clients who’d invite me onto their yacht to thank me for all my hard work.

The reality, I soon discovered, was way different from what I expected—and what many home buyers and sellers might envision, too.

The story of my first real estate commission

After graduating from college, I was soon introduced to an agent at a large real estate company who agreed to be my mentor. After shadowing this successful agent for a month, I set out to get my real estate license and started working there.

One of the first things I learned was that unlike many other professions, real estate agents generally aren’t hourly employees, but rather get paid on commission.

This is a lump sum, paid only when a home is sold. Important to note: It is not a set price, and it varies quite a bit per transaction. Most typically it hovers around 5% to 6% of the home price.

Given that your average home in San Francisco sells for around $1 million, a typical commission could amount to upwards of $50,000—which seems like a lot!

But I was soon in for a brutal reality check on how much work goes into that commission, and how it gets divvied up.

My first client

My first client was a tech industry worker from New Zealand. He’d been living in San Francisco for a few years and wanted to buy his first home.

Upon meeting this client at my office, it became obvious that he was extremely anxious and skittish. He knew nothing about home buying, and would constantly change his mind based on random news, his parents’ opinions, or his emotional state.

His anxiety levels were exacerbated by the fact that he was buying in a foreign country. Since his parents were involved in the deal, I had to deal with three stakeholders living on different continents.

Undaunted, I accompanied my client to numerous open houses during that initial weekend. For each property, I came equipped with meticulous documentation, which I’d memorized to perfection.

I had prepared to act like an objective market analyst; in reality, I spent most of my time serving as a chauffeur and a therapist.

We attended dozens of open houses and 19 private showings, and clocked hundreds of hours on calls discussing personal taxes, property taxes, closing costs, investment strategies—and his worsening anxiety.

As for me, without a base salary, it became difficult to survive in San Francisco. The rock bottom moment hit in the middle of a sweltering summer, when my car broke down as I was frantically trying to meet my client for a showing.

As an agent, losing your car is like losing a limb. I soldiered on and took a commuter train into the city. San Francisco’s hills look great on postcards, but not so much if you’re sprinting in a suit in 98-degree heat.

Miraculously, I made it to the property on time and began reviewing my prepared materials. I promptly received a text from the client, informing me that he couldn’t make the showing. That’s when I became acutely aware that all my work might amount to nothing.

Breaking down my commission

However, after six months of struggling, the client and I finally found a perfect place for his needs, and we closed the deal. For me, that finally meant it was payday! Here’s how the commission was broken down:

  • The deal was a co-op purchase for $690,000.
  • The full commission on this deal was negotiated to be 5% of the purchase price, a total of $34,500.
  • The listing agent took half, or $17,250, and the other half went to the buyer’s brokerage.
  • Since I had partnered with another buyer’s agent on this deal, I made 50% of the buyer’s side commission, which was worth $8,625.

 

While $8,625 might seem like a lot of money, I’d been dedicating about 20 hours per week to this sale for over six months, a total of 480 hours.

My return boiled down to less than $18 per hour.  And that was before I gave the IRS my cut of the income. Ultimately, I was working for near minimum wage.

Doesn’t seem so glamorous anymore, does it?

The ugly truth about real estate agent commissions

Many home buyers and sellers think that real estate agents have an easy and lucrative career, because they focus on that singular moment when agents receive the commission check.

What they don’t see is the grunt work that is required to make each deal close. They don’t experience the psychological toll of knowing that a deal could be canceled and that their months of work could amount to nothing.

But I stuck it out, and things did get better.

I learned how to work smart and automate as many processes as possible, because I knew that hard work alone wouldn’t result in victory.

By teaming up with the best agents in San Francisco and building my personal brand across social media channels, I was able to market over $20 million of real estate within my first year in the business, and marketed close to $100 million the next.

Ultimately, there is something magical about helping someone find their dream home. You’re not just moving someone into a house, you’re creating years of memories and experiences for this person and their loved ones. When a deal comes together, it’s immensely gratifying in ways that defy description.

Still, the next time you wonder “What am I paying this real estate agent a commission for, anyway?”, I hope you remember my story and give your agent the benefit of the doubt. You can assume that the answer to your question is: a whole lot.

The post A Real Estate Agent Dishes the Brutal, No-Holds-Barred Truth About His First Commission appeared first on Real Estate News & Insights | realtor.com®.

Who Draws Up the Purchase Agreement for a Home That Is For Sale by Owner?

November 15, 2019

Who Draws Up the Purchase Agreement for a Home That Is For Sale by Owner?

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The seller’s agent is typically the person who draws up a real estate purchase agreement. But what happens if the home is for sale by owner (or FSBO) and the owner isn’t represented by a real estate agent at all?

A FSBO sale can occur in a seller’s market or when sellers want to maximize their profits on a sale by not having to pay a commission to a real estate agent.

So if the buyers want to make a written offer on property, who will be tasked with drawing up the purchase agreement, or the contract outlining the terms and conditions of the sale?

Some buyers may wonder what their next step will be without an agent to guide them through writing a contract and closing the sale. It’s not unheard of for buyers to move on, because they are afraid to sign a contract without the help of an agent.

Experts say the solution is to turn to the buyer’s own representation for writing a contract.

“Typically, if the seller does not have a Realtor®, the buyer’s agent ends up doing most of the work,” explains Ryan Hardy, a real estate broker with Gold Coast Realty in Chicago.

Who drafts the purchase agreement for a FSBO?

As a real estate buyer, a purchase contract is one of the first steps toward closing the sale.

“In layman’s terms, a purchase contract is simply the written contract between the buyer and seller outlining the terms of the sale,” Hardy explains.

Most real estate purchase contracts include details such as the purchase price, closing date, and any contingencies the sale hinges on—such as the real estate passing inspection or appraising at a value that the buyer’s lender agrees is high enough to warrant a mortgage.

Real estate purchase contracts generally also contain financing contingencies, meaning you get your earnest money deposit back if you can’t get a mortgage. This makes sense, because most buyers can’t fulfill a contract to buy residential property if they can’t get financing.

Buyers can have real estate agreements drawn up by a real estate attorney or agent. A title company or Realtor can help the buyer find someone to write a contract if necessary.

If the seller doesn’t have an agent lined up to draft the purchase contract, the buyer’s own real estate agent can take care of the transaction paperwork as a transactional agent, also known as a dual agent, says Joanne Bernardini, a Realtor with Coldwell Banker–Casa Bella Realtors in Linwood, NJ.

You may also need help writing up a contract if someone is selling property on a land contract. A land contract is used when the owner provides financing when going to sell, so that you do not have to get a mortgage elsewhere to purchase the property.

The contract stipulates the amount of the loan, the interest rate, and what happens if you fall behind on property taxes or payments. You and the seller can negotiate the terms of the agreement, including the interest rate on the loan.

Keep in mind that certain states do not allow dual agency in real estate transactions, and that some states see it as an ethical dilemma.

If you as the buyer decide to use a transactional agent for the contract, think of them as “one person who neither represents the seller nor the buyer but facilitates the documents necessary for the sale,” says Joyce Mitchell of Mitchell & Associates, in Bigfork, MT. If you have any doubts about the contract, consult your own attorney.

Who pays the fees to draw up an agreement to purchase a FSBO?

The cost of drawing up a purchase contract is typically included in the real estate seller’s commission fee, paid at closing from escrow as part of closing costs.

However, if an owner doesn’t have a real estate agent because it’s a FSBO, and the buyer’s agent is doing the work of preparing the transaction, that doesn’t mean the buyer needs to foot the bill.

The buyer just needs to be prepared to ask the seller to pay the portion of the commission for writing the contract, says Kaera Mims, a Realtor with Liz Moore and Associates in Newport News, VA.

“If you have a real estate agent in mind, I would discuss the scenario with them, and they can contact the seller on your behalf to schedule the showing and ask about compensation,” Mims says. “I find that some sellers will pay the agent’s commission if I bring them a ready and willing buyer. We just have to ask.”

The post Who Draws Up the Purchase Agreement for a Home That Is For Sale by Owner? appeared first on Real Estate News & Insights | realtor.com®.

What Percentage of the Sale Price Do Real Estate Agents Charge?

May 3, 2019

What Percentage of the Sale Price Do Real Estate Agents Charge?

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If you’re a home seller, you’re probably asking yourself an important financial question: What percentage of the sale price do real estate agents charge?

There is no legal guideline stating how much commission you must pay an agent to sell your home. However, there is an industry standard for fees and the percentage given to agents who help during a real estate transaction.

What percentage of the sale price do real estate agents charge?

The percentage of the sale price real estate agents charge is known as a commission. That figure can vary from state to state and among brokerages. You can find your local Realtor® association and ask what commissions generally are in your city or town. But in most areas, the typical commission is 6%; that comes out of the sale price of your home, to be split 50-50 by the agents of the seller and buyer.

For example, a home that sells for $400,000 would generally see a $24,000 commission, $12,000 of which would go to your agent and the other $12,000 going to the buyer’s agent. Note that how the fee is broken down is a separate contract between the brokers and not something the buyer gets to negotiate.

Why do real estate agents take a commission?

The answer is fairly simple: The commission is the fee the agent earns for the work of marketing and selling your home. This could include researching potential properties, spending their own money on marketing, hosting open houses, writing up offers, and being present during inspections. In other words, this is how they get paid.

“Your agent will also have to split a part of their commission with his or her broker for office overhead and other expenses,” says Lee Dworshak, a real estate professional with Keller Williams Harbor Realty in Rancho Palos Verdes, CA.

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Watch: Just How Long Does It Take to Close on a Home?

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Will real estate agents take less than 6%?

As we stated above, a 6% commission is standard, but some real estate agents will charge more or less depending on the situation.

“I can tell you that, personally, I don’t take listings for less than 6%,” says Denise Shur with 1:1 Realty, in San Jose, CA. “Sometimes I even charge 15% if the situation is extraordinary. I do this because I work very hard for my clients, spend lots of money on marketing, network with clients internationally, and take on no more than two clients at a time.”

That said, commissions are almost always negotiable. And what an agent will accept as a commission depends on market conditions, as well as the location and condition of your home. A fixer-upper on the outskirts of town may take more time and effort to sell, so an agent may want a higher fee.

“Talk to several real estate agents and see what you can negotiate,” says Tracey Martin, an agent with Realty World Premier Associates in Salinas, CA.

Commission and dual agency

Let’s say you and your agent agree to a 6% commission to list your home for sale. If your agent represents only you, she will get 3% and the buyer’s agent will get 3%. If your agent represents you and the buyer, she will get the full 6%. Agents representing both sides of a home purchase is known as dual agency.

Dual agency is legal in some states, but not all. There are both advantages and disadvantages to buying a house through dual agency, but ultimately, you want to make sure your agent is representing your best interests.

“You want your listing agent focused 100% on getting you top dollar on your home,” says Shur. So if it is legal in your state, she advises sellers to include language in your listing agreement that states your agent won’t represent buyers.

The post What Percentage of the Sale Price Do Real Estate Agents Charge? appeared first on Real Estate News & Insights | realtor.com®.

The Real Estate Commission: A Guide to Who Pays, How Much, and More

April 15, 2019

real estate commission

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If you hire a real estate agent to help you buy, sell, or rent a house, this professional gets paid through a real estate commission. So how much do you pay, and what for? Is there any wiggle room to negotiate this fee?

As a real estate agent myself, allow me to tell you firsthand everything you need to know about real estate commissions, from who pays to how much to where that money goes.

How much is a real estate commission?

Rather than getting paid hourly or weekly fees, most real estate agents earn money only when a real estate deal goes through.

While there are some real estate agents who will charge a flat fee for their services, most charge a percentage of the sales price of the home once the deal is done. That exact percentage varies, but the commission is typically 5% to 6% of a home’s final sales price. On a $200,000 home, a 6% commission would amount to $12,000.

Granted, this may seem like a serious chunk of change, but keep in mind that no one makes off with the whole amount! Plus, real estate agents don’t see a dime until a buyer finds a home she loves, the seller accepts the offer, and all parties meet at the closing table. That process can mean weeks or months of work.

Who pays the commission?

Generally, the home seller pays the full commission for the services of both their own listing agent and the buyer’s agent (assuming the buyer has one).

Buyer’s and seller’s agents typically split the commission. So if a home sells for $200,000 at a 6% commission, the seller’s agent and buyer’s agent might split that $12,000, and each receive $6,000.

However, the commission split varies from one agent to another, with new agents sometimes earning a smaller percentage of the commission than experienced agents who sell more homes or more expensive properties.

What is dual agency?

So what happens if an agent represents the buyer and the seller? In that case, the agent becomes a “dual agent” and gets paid both commissions. (Talk about a big payday!)

However, because it puts them in a sticky position of having to work for both the seller and the buyer, many agents don’t practice dual agency—and some states don’t even allow it. I believe it creates a conflict of interest. After all, clients hire me to represent their best interests. How can I do that when I’m sitting on both sides of the table?

What does a real estate agent commission cover?

Though people certainly have the option of selling (or buying) their house without a real estate agent, agents provide clients a wide range of services, including helping you price your home, marketing it (on the multiple listing service, social media, and other venues), negotiating with home buyers, and ushering the home sale through closing.

As trained experts, real estate agents can help you fetch top dollar for your house and put out fires—while also alleviating some of the stress that comes with selling a home. (It’s no picnic!) I might be biased, since I’m an agent myself, but great ones earn their keep.

Want proof? Just look at the numbers: A recent survey found that the typical “for sale by owner” home sold for $190,000, compared with $249,000 for agent-assisted home sales, according to the National Association of Realtors®. That’s in line with a recent survey from Keeping Current Matters that found that homes listed for sale with a real estate agent sell for $46,000 more on average than FSBO houses. Perhaps that explains why 92% of home sellers use an agent to sell their house.

Is a real estate agent commission negotiable?

Though 5% to 6% tends to be the norm, commission standards can vary from state to state and among brokerages. Still, there are no federal or state laws that set commission rates—meaning commission is negotiable.

In other words, if you’re a home seller, you can certainly ask your agent to reduce their commission, but be aware that he is not obligated to do so.

A factor to consider: Because the marketing dollars for a property generally come from the agent’s commission, a lower commission could mean less advertising for your house.

That being said, it doesn’t hurt to ask for a lower commission. Most agents won’t take offense, and the worst case is they say no. Or, if you’re truly tight on cash—say, because you’ve maxed out your budget buying your next home—you could opt for a transactional agreement, in which the listing agent will help you set an asking price, facilitate communication between you and the buyer, write the contract, and move the process along to closing for a flat fee or lower commission, but you won’t receive the agent’s full services. It’s not ideal, but it’s the right route for some people. However, not all agents offer transactional agreements, so you may have to shop around to find one.

Bottom line: It is likely that buying and selling a home will be the biggest financial transactions of your life, so be sure you find an agent that you trust will do a great job. This is not the time to shop solely on price.

What else do I need to know about commissions?

All of the details about a real estate agent’s commission (and any transaction fees the agent charges) should be outlined in the contract that you sign when you hire an agent. This is typically referred to as a listing agreement, and it also specifies how long the agent will represent you. (Generally, listing agreements last 90 to 120 days.)

Also keep in mind that there are some exceptions. For instance, rental agents work differently from purchase agents. It’s usually the landlord’s job to pay the rental agent’s fee, but that’s not set in stone. In New York City, for example, tenants often pay the rental agent’s commission. It’s up to the landlord and the tenant to decide who pays the rental agent’s fee.

Furthermore, commission is usually higher when selling a vacant lot (anywhere from 10% to 20%), since selling land often takes longer and requires more marketing dollars. Some auctions charge home buyers a 5% “premium,” or commission.

As a seller, you want a real estate agent who can broker the best sales price and terms for you, but good agents aren’t cheap. As with most things in life, you get what you pay for.

Michele Lerner contributed to this report.

The post The Real Estate Commission: A Guide to Who Pays, How Much, and More appeared first on Real Estate News & Insights | realtor.com®.