21 Sep Why Pay A Real Estate Agent Commission

When a realtor has that first listing presentation with a potential seller they usually ask for a commission of 6 – 7%. Most people, including me before I got into real estate, could not believe this figure. How could one agent profit thousands of dollars off one home? Well, it’s not so simple.

What most people don’t understand is that commission is divided between 4 people; the listing broker, the listing agent, the selling broker and the selling agent. Lets take for example a home that sold for $100,000 with a 6% commission. The listing broker and listing agent will divide usually split the commission 50/50 with the selling agent and the selling broker. In this example, each Real Estate office will take home $3,000. That $3,000 is further split between the broker and agent. So the listing broker and the listing agent will take home $1,500 and the selling agent and the selling broker will each take home $1,500.

So the listing agent makes $1,500, how is that broken down? Does he or she profit $1,500? Not exactly. Depending on how good the agent is or how he or she markets your home, the listing agent could spend upwards of hundreds of dollars to market the home. Postcards, online marketing, signs, flyers, and open houses are just one of the many ways a good Real Estate agent can market your home.

The cost for an agent to list your home doesn’t stop there. Real Estate agents have to pay a few thousand dollars in fees each year to keep their license active. In St. Louis, Missouri for example, it costs a Real Estate Agent over $700 a year to be part of Associations including the St. Louis Association of Realtors and National Association of Realtors, both which employ lawyers and lobbyist to protect home owners. Real Estate Agents also have to pay for a Supra (the little black box that holds a key) and they also have to pay to activate the MLS (how agents search for listed homes).

Each broker needs an office which costs money to operate. Rent, electricity, printer and fax machines, secretaries, insurance, marketing costs, franchise fees, taxes, attorney’s fees, accounting fees and phone lines are all office expenses that need to be paid by commissions.

When you divide all the commission expenses between the agents and brokers and then divide that from license fees and office expenses it leaves Real Estate Agents with a small fraction of take home pay. Not only that, but that agent won’t get paid until your home sells. With the way the market is today, homes can be on the market for 1 or even 2 years. That means that the agent is basically working for you for free until then. Next time an agent presents you with a 6 -7% listing commission take into consideration where that money is going.

Note: All numbers are examples and do not necessarily represent the amounts that Hermann London agents charge to sell a home, nor the commission split agreements that our agents have with the company.