Why do realtors charge their fee based on a percent of the of the sales price?
Posted on January 31st, 2010 by admin
What does the sales price of a home have to do with anything. It does not cost any more to sell a $200,000 house than a $400,000 house. Why is not based on a flat fee? Sometime the Realtors make more than the homeowner does. This seem to be one of the largest scams played on the american public today.
It’s not a scam. Realtors admit they get a fee. They’re required to by law, like all commission sales people.
In a lot of cases, the Realtor’s office gets 3% of the final sale price, and the Realtor him/herself gets 3%. But remember that the 3% is what the Realtor *lives on*.
They do not get a salary, nor do they get a steady paycheck. And they paid some money and attended a training program (sometimes a couple, depending on where) in order to become an agent. A Realtor is even more elite. They paid to play, and they’re working for however much they can get.
Every self-employed person lives by the motto "haud opus, haud victus… no work, no food."
3% of a $200,000 house is $6,000… but how many months did it take to get that money? And remember, Realtors pay taxes _after_ they get paid. Their earnings are not conveniently withheld so they can just blow their money. Up to 40% of what they make goes straight to Uncle Sam, for the sweat of their backs.
The less guarantee there is of a pay-off, the higher the risk of days without food and of getting the electricity turned off, the larger the ultimate pay-off should be. IMO, that’s the American Way.
Hope that explained.
January 31st, 2010 at 5:43 am
Because that is the industry standard.
I agree with you, but only partially.
It is far, far easier to sell a $100,000 house than a $20 Million dollar house. There are simply more potential buyers.
The $20 Million dollar house is likely to be on the market longer, require more advertising, and the buyers will require more demanding service.
However, I don’t believe that it is 200x the effort, but it is 200x the commission.
If you have a high-end house for sale, I would negotiate with the realtors for a lower commission. My guess is, they would probably be willing to move some to get the listing.
For a low-end house, there is much less wiggle room for negotiation.
–>Adam
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January 31st, 2010 at 6:15 am
Under the sale thinking, it also allows the person with the 100k home to afford the same services as the 400k owner.
Higher end homes do require more advertising and contacts, there are simply fewer buyers for the high dollar homes (although your example is not high end).
If you do not like the cost of services you are free to sell your home w/o receiving those services. Agents are upfront about what you are getting for their fee, it is far from a scam.
I would never sell without an agent, I make a higher profit with them, and completely avoid legal problems (25% of FSBO end up in the court system).
The person making the money is the mortgage broker, they get a higher commission then the agents and it is not disclosed to the buyers.
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January 31st, 2010 at 6:35 am
The commission encourages the agent to try to get the best possible price for the house. If he/she gets more, the owner also gets more.
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January 31st, 2010 at 6:51 am
Partially because it creates incentives for the realtor to negotiate for the highest selling price for the home- making both them and the owners happy.
A flat fee only incents the realtor to close the deal at any price, which would be a disservice to their clients.
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January 31st, 2010 at 7:03 am
As a former realtor – depending on the market you are in, it is much tougher to sell the higher end homes than it is the lower end. You are marketing to a much different audience than in the lower end homes and so therefore you have to totally change your marketing plan in order to reach the target market that is looking for a home in the higher price range. You may have to hold exclusive, catered lunches to lure prospective buyers in, you may have to do a tv commerical, create a website just for that property.
One other thing that most people don’t know is that unless a realtor is one of the "big names" in the area, they have to split their commission, or if they are a "big name" they have to pay desk fees to their agency (ie century 21, prudential, remax) and there are fees that you have to pay to those corporate companies for "belonging" to them. So unfortunately, the realtors don’t always get that big payday that you think that they get (although they usually still do pretty good, it is a tough industry though).
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was a former real estate agent
January 31st, 2010 at 7:37 am
It’s not a scam. Realtors admit they get a fee. They’re required to by law, like all commission sales people.
In a lot of cases, the Realtor’s office gets 3% of the final sale price, and the Realtor him/herself gets 3%. But remember that the 3% is what the Realtor *lives on*.
They do not get a salary, nor do they get a steady paycheck. And they paid some money and attended a training program (sometimes a couple, depending on where) in order to become an agent. A Realtor is even more elite. They paid to play, and they’re working for however much they can get.
Every self-employed person lives by the motto "haud opus, haud victus… no work, no food."
3% of a $200,000 house is $6,000… but how many months did it take to get that money? And remember, Realtors pay taxes _after_ they get paid. Their earnings are not conveniently withheld so they can just blow their money. Up to 40% of what they make goes straight to Uncle Sam, for the sweat of their backs.
The less guarantee there is of a pay-off, the higher the risk of days without food and of getting the electricity turned off, the larger the ultimate pay-off should be. IMO, that’s the American Way.
Hope that explained.
References :
I’ve watched my real estate agent age 5 years in about 1. It’s a hard-knock life.
January 31st, 2010 at 8:24 am
The realtor’s fee is based on a percentage for affordability. If your house is selling for $100,000, then you probably don’t have the money to pay your realtor $10,000 for their commission. That’s why everything is done on a percentage commission system. The more money you get for your house, the more money you can afford to pay your realtor. It makes sense, and if someone doesn’t want to pay a realtor that much, then they don’t have to hire one.
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Me, real estate agent
January 31st, 2010 at 8:38 am
There are plenty of flat fee brokers out there. Try one and see how your home sells. Agents get paid for a reason, RESULTS. Half a%% pay makes for a half a#$ effort.
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