Summary: A real estate agent writes that real estate commissions are reduced by real estate advertising costs. The real estate agent describes other costs that lower real estate commissions more. In addition to real estate advertising costs, real estate agents may have to split commissions with other agents and pay for gas and extra help.
Q: I just finished reading your answer to the question about 90-day listing agreements and I couldn't help but to write to you. I don't agree or disagree on writing a 90 day listing agreement. I have written them many times for 90 days and most people relist anyways.
It's not always the most convenient thing to do, but if my customers don't want to relist with me then I probably don't want to relist with them.
I do agree with the person who wrote this question, that homes are on the market well over 150 days. In fact in many of our neighborhoods here the number is actually 190+.
What gets to me is that people seem to think we shouldn't make a living. That 5 or 6 percent or whatever the agent is charging is very often split with a buyer's agent. So on a $100,000 home at 6 percent, the listing agent is making $3,000.
Advertising for an average agent costs almost up to $1,000/ month and can be much more. Just two real estate magazines' page ads run over $400, and sellers always want their houses in print. And then there are the costs of signs, lockboxes, Web site fees, any kind of print media and mailers, etc. In our area, we are rural, and many of our homes here sell under $150,000, so these numbers are not a far stretch.
Let's not forget we then split the commission with the broker, let's say 30 percent, and then pay desk fees. And gas, and time. And let's not leave out our knowledge, our expertise. Preparing contracts, keeping our customers organized and within the time limits in their contracts. So that leaves us probably with less than $1,500 on a $100,000 sale.
Now if we're selling several homes every month then we would be making an average living – and I stress average – but right now even some of our top agents have a month where the sales are falling apart.
Short sales take months to close, buyer's financing falls through and such. So selling one house a month would earn me a little over $13,000 per year? Boy I guess I'm greedy. And what about agents who list at 4 percent, or those whose office fees or splits are greater?
I bet it would be difficult to find someone willing to be on call seven days a week who actually works a good eight hour day for at least five of those days and only makes that much per year. Fortunately many people recognize the amount of work we do for them. Unfortunately the ones who don't see it this way are always the ones who make it to print.
And for those that think we are useless, well just look at what the housing crisis is proving. Without us selling homes, many other trades and businesses are collapsing. Without a real estate transaction, there are no closings for title agents, no new mortgages, no home inspections, septic inspections…well you get the idea.
A: Your letter provides an interesting look inside the real estate profession, and I can tell you're frustrated. I appreciate your comments about the length of listing agreements and think that it's wise of you to work with your clients to accommodate the length of time that they want for a listing.
Many agents worry that if they don't sign their clients up for the long haul, they won't renew their listing agreements. So, they push for a long listing agreement that just pens everyone in.
Thanks for also providing an inside look at how the finances of being a real estate agent often differ from what many home buyers and sellers would have expected – especially in a slow market.
It's true that very few agents are paid on an hourly basis for their work. Most, like you, rely on flat-rate commissions for their income. Your letter provides a glimpse at some of the out-of-pocket expenses agents often bear, like advertising, the entertaining of clients, gas, car maintenance, technology expenses (like computers, cell phone and Blackberry services), and other expenses that keep your business humming.
If you lived in a high-cost area, like New York City, where the average home sells for nearly $1 million instead of $150,000, the economies would work better, even if you just sold one house per month.
But in areas where the average sale is $150,000 or less, it's tough to make ends meet when your fixed costs don't fall but your commissions do.
There are good agents and bad agents, good clients and bad clients. I think the hallmark of a great agent is that he or she makes it all look easy and seamless. You sound like a hard-working agent who is trying to make a living in a very tough real estate market. I wish you continued success.
Cul-de-sac
