Since as early as 1900, Americans have been trusting real estate agents to handle the home buying and selling process for them. If you plan to use an agent (or wonder if you should go it alone) it’s best to know exactly how much money they’ll cost you, and what they do to earn it. This will help you come to an informed decision about how to sell your home, and prepare you to get the best deal when you do.
How Do Real Estate Agents Earn Their Fee?
For a percentage of the sales price, the listing agent will traditionally:
Help you determine when to sell your home
Conduct a home value analysis to accurately price your house
Photograph your home including drone photography
Advertise your home on the MLS and alternate sources
Show your home during an open house or private showing
Negotiate offers and help you decide the pros and cons of each one
Work with the Buyer's Agent to schedule inspections
Negotiate the final sale price, closing costs, and repairs
Coordinate the closing process
Basically, real estate agents make themselves available to be your guide from the moment you think of selling to the moment you’ve closed the deal. Your real estate agent will also foot the bill for services—like professional photography and advertising—that would otherwise fall on the seller. In the process, an experienced realtor will usually get you the highest price in the least amount of time according to the National Association of Realtors.
How Do Real Estate Agents Make Maximizing Your Profit Their Number One Goal?
First, your listing agent should be motivated, and second, they need to be experienced. In their years spent listing and selling properties, they’ve figured out the best ways to price, market, and negotiate the sale of your home. Sellers who take advantage of an agent’s drive and expertise can expect to recoup the cost of their commission if they do a great job.
Agents who work on behalf of the buyer are also key to successful transactions. Even though it may seem like buyers have more access than ever to potential homes, a trusted realtor is still indispensable. Through their local connections and extensive experience, they often have intimate knowledge of a property or neighborhood that images on Zillow may not convey. This means that they won't waste a buyer's time by showing them properties that may not fit their needs. As a buyer, when you do find that potentially perfect property, your realtor will have the inside track on getting you inside the house for a more intimate look.
As the liaison for their buyer, top agents reach out to other realtors to find open houses and schedule as many showings as you want. Once you've settled on a house you'd like to buy, they'll be there to advise you from the time you make an offer until you've closed on your home. Along the way, they'll connect you with a top home inspector, negotiate repairs with the seller, suggest financing options, and handle the mountains of legal paperwork when buying a home. Most buyers would be happy to pay for these services, and one can certainly argue that they indirectly do, but a perk of being a buyer is that the agent's fee comes out of the real estate transaction. Based on how much help they provide, it's no wonder they're entitled to a split of the money.
Whether you're selling or buying a house, a realtor can make the process easier and, ultimately, more profitable; which is why they continue to earn money even as the housing market evolves.
How Does A Real Estate Agent Get Paid?
Generally, a real estate agent's income is based on a 6% commission of the final sale price. In a typical real estate transaction, there are two agents: one representing the seller, and one for the buyer. This means that you—the home seller—covers a 6% total commission fee which is split evenly between the buyer's agent and seller's agent. Depending on the sales price of your home, it can be a pretty substantial chunk of cash. For example, if your home sells for $344,000, the average sales price in Nashville, then $20,640 of that money would be paid to the real estate agents. Keep in mind that the buyer does not pay out of pocket to use the services of a buyer's agent as their fee is also paid for by the seller.
6% Commission Real Estate Agents
Despite an agent’s clear value, some sellers struggle to part with their hard-earned home equity in lieu of the agent's 6% commission. What many of these sellers fail to realize, though, is that the realtor is paid only a fraction of the money. By law, real estate agents have to work under the supervision and license of a real estate broker, someone with an advanced certification who oversees the transactions facilitated by their agents. Even though the agent is doing almost all the legwork on the sale, this broker usually commands 50% of the final commission. That means agents are paid just a 1.5% slice of the profit, which hardly seems unreasonable after the effort they put in on a seller’s behalf. Also, most agents are independent contractors meaning they are not paid a salary. The income they earn is based solely on commission fees.
Understandably, some sellers want to avoid paying this expensive 6% commission fee which has led to new innovative models that favor a lower sales commission. There are two primary low commission real estate models that help home sellers save on realtor commissions.
Flat Fee MLS
For an up-front, one-time fee that averages around one thousand dollars, flat fee MLS companies usually offer an a la carte menu of real estate services. How much they’re actually saving you, though, can at first seem a little misleading. Flat fee real estate companies offer a limited initial package that covers some of the bare-bones essentials when selling your house. This often includes listing your property on the MLS—the property database realtors use to see available listings. If you want additional services, like help determining a list price for your home or negotiating with buyers, then choosing a flat-fee MLS company may not be the best choice.
Low Commission Real Estate Agents
A low commission real estate agent, or discount broker, is a realtor who has chosen to advertise a reduced commission percentage. The exact percentage differs between real estate companies, but it is common to see a low commission real estate agent charge 1% of the total sales price. This 1% rate does not include the commission paid to the buyer's agent which, in Nashville, averages 3%. Unlike the flat-fee MLS model, a low commission real estate agent offers the same exact services a traditional 6% agent would, just at a discounted rate. So how do low commission realtors earn a living? Discount realtors can afford to charge a lower commission thanks to their operational efficiency and their use of modern technology. Basically, they've found more efficient ways to sell homes, and they're transferring the profits back to the seller. Most low commission realtors are paid a base salary and receive a bonus for each home they sell. A traditional realtor, on the other hand, is most commonly an independent contractor, not an employee of a firm. Low commission agents work just as hard to sell your home, offering the entire suite of services sellers have come to expect from traditional real estate agents. That's why, generally speaking, this option is the best for people whose first priority is to maximize their profits from the sale.
How Hard Is It To Earn A Living Being A Realtor?
Believe it or not, this is a fairly complex question. Since it doesn’t take very long to get a real estate license (about 90 hours in the classroom), there’s a rumor going around that just about anyone can be a successful real estate agent. People think it's easy to sell someone's home, and make thousands off of the transaction. They're sure that the only thing standing between them and a great income is a few high-dollar sales per year. The numbers, though, suggest that this simply isn’t true. Many real estate agents are inexperienced and struggle to get their careers off the ground. Others approach real estate as a side gig, and try to move properties in their free time. These listing agents often sell as few as 5-6 homes per year and make annual commissions of less than $20,000. It can take years for real estate agents like these to find their footing in the housing market, but once they do, how much they get paid depends on their commitment to the job.
How Much Do Realtors Make Their First Year?
Being a real estate agent may seem glamorous, but success is all about putting in the hours. First year agents who work 21-39 hours/week make an average of a little less than $47,000 per year, while agents in the United States who work 51-59 hours/week usually net nearly six figures. These nationwide statistics can be a little misleading, though, because so much of a realtor’s earning potential depends on the state or city in which they operate.
How Much Do Top Real Estate Agents Make?
The conventional commission model dictates that a realtor’s salary hinges on the activity and home prices in their state or city. The more high-priced properties on the move, the more money a real estate agent can earn. That’s why agents in New York made an average of $102,310 per year in 2017, while agents in Ohio, the nation’s least lucrative state for realtors, boasted an average annual income of only $41,650. The only drawback to hot housing markets is that everyone knows about them, and competition among realtors who are trying to make as much money as possible is intense. Agents in places like Los Angeles, where there are almost 40,000 residential realtors, need to put in long hours to separate themselves from the crowd. So real estate agents landing the big commissions in these areas are likely making correspondingly large sacrifices in their personal lives.
Do Experienced Agents Earn More?
It’s not easy to operate in booming markets where buyers have lots of attractive options, which is why a realtor’s success also depends on another key factor: experience. A seller with an expensive home wants a real estate agent they can trust, which is why they tend to choose a proven realtor with a track record. It pays to use an experienced realtor because they have the best grasp on their market, so they understand what buyers are looking for, how to reach them, and how much they’re willing to pay. Building expertise in the industry takes time, which is why the top real estate agents typically have been in the game for a while. Real estate agents with at least 11 years of experience make an average of over $101,000 per year, while those with 1-3 years of experience earn less than $40,000 annually. Factors like an experienced agent’s networking and referrals certainly account for some of this gap, but their elevated market knowledge is what makes these superior leads rolling in.
Does A Real Estate Broker Earn More Than An Agent?
Even experienced agents, however, are often still at the mercy of the type of broker they work for, as the broker split can add up quickly. As we've mentioned, many brokers siphon as much as half of an agent’s commission. Realtors in these situations struggle to make as much as other listing agents, which is why agents who work for independent brokers make an average of just over $69,000 per year. Agents who can operate independently as their own brokers, on the other hand, earn an average of $106,280 per year. All of these factors suggest that, while getting ahead in real estate is no cakewalk, agents who fully invest themselves in the industry can expect to see consistent, substantial returns.
At Felix Homes, we strive to help people save, which is why we believe that our full-service, low-commission model is the most financially responsible way to sell a house. If you live in the Nashville area and want more information on how you can sell and save, give us a call at 615-354-5731, or send us an email at email@example.com.