The perception is....most real estate agents make a lot of money. The reality is...they don't.
This blog is inspired by the current national conversation of breaking up employee unions and demanding benefit concessions from public employees. I'm not going to comment on that discussion, but it does relate in a way to what many people think: real estate agents make too much money from selling a house.
Let's look at a typical sale for a $200,000 house. The typical commission is 6%, split 50/50 between the seller's agent and buyer's agent. The commission check of $6000 goes to the seller's brokerage (i.e., Prudential, Remax, etc). The brokerage will take, off the top, anywhere from 5-40%. (That percentage is usually based on how much volume the agent sold the previous year. For example, an agent may have to sell over $4million in real estate to keep 75% of the gross commission check. That means you would have to sell 20 houses at $200,000 in one year just to keep 75% of your check). Let's use a middle figure of 25%.
If the brokerage keeps 25% ($1500), that leaves a gross check of $4500 to the agent. In turn, the agent should withhold about 25% for taxes, or $1125. Now we are down to $3375. Take out another 15% for desk fees, dues, continuing education, errors and commissions insurance and supplies. That leaves $2869. Out of that figure, perhaps another 10% for marketing (flyers, camera, website, gifts, meals, signs, staging, etc). We are at a figure of $2583. Haven't taken out the cost of health insurance yet! Or a referral fee of 20-30% if a relocation company or referral fee is involved. We'll let those expenses slide for now. And remember, no paid holidays or vacation benefits. Also, I believe the majority of good agents work six days a week, often seven.
If your average sale is $200,000, and you made 12 sales per year, your net salary would be around $31,000. Is that a lot of money? Depends on your perception. Do most agents make 12 sales per year? I don't know the answer to that one, but in this housing slump, probably not. And as noted above, an agent would have to sell 20 homes in a year with that average price just to keep the 75/25 split.
Most good agents work very, very hard for their customers. Clients don't see the countless hours of work an agent puts in outside of the personal contact to make their business successful and clients happy. Quite often an agent works longer hours on a small $150K deal than a $400K deal--for much less money. If a house doesn't sell--the agent loses money. If a buyer doesn't buy--an agent loses money. The expenses are still there.
Everyone is watching expenses more closely these days--agents are no different. We want our customers to get the best deal, spending the least amount of money. But when you see that HUD statement showing a $6000 commission to the broker--remember that your agent is probably netting less than half of that amount.
(note: not all brokerages have the same split or expenses, these figures represent an example)