What do real estate agents earn in commission? Negotiating a few thousand dollars on a home price won’t bolster their commission much.
Q: We are trying to buy a bank-owned house. The listing price was $115,000 and we offered $90,000 last week. The listing agent wrote back, “The bank said $96,000. All other terms the same. That is their bottom.”
I wrote back and asked if we could offer $93,000 and he wrote, “Bank won’t accept. I’ve had over 20 offers and the bank will not accept anything less than what I sent to you. Let me know what you decide.”
Is that really their bottom line or is he trying to get extra commission? I love the house and don’t want to lose it, but I also don’t want to pay more than we have to.
A: No one wants to pay more for a home than necessary, so we’re with you on that point. Still, it seems to us that you’re being penny wise and pound foolish. And, you’re operating under several misconceptions.
Let’s start at the top, with the commission.
You suspect that the agent is trying to increase the offer to better his commission. If that were true, why would he have rejected 20 other similar offers? We don’t believe it.
It’s clear that you don’t understand how agents earn their commission. Here’s the scoop: On the difference of $3,000, which is the amount under discussion, the agents might split 6 percent, or $180. That’s about $90 for the buyer’s agent and seller’s agent, and they might have to split that in half with their respective real estate companies.
So, your agent would only pocket another $45, give or take a couple of bucks, if you up your offer by $3,000. While $3,000 may be a significant amount of money for you, a $45 increase in the commission isn’t even enough to make him return your phone call.
Sure, he wants to do the deal. And, he’d obviously like to sell the property to you. But the real estate agent isn’t a magician and he can’t wave his “for sale” wand over the deal and make the lender take less than it states it wants.
If the lender has rejected 20 offers – and for the sake of argument let’s assume that’s true – and the agent is telling you that the lender’s bottom line is $96,000, you should offer $96,000 if you truly want to move into this house.
If you don’t want to spend another dollar on this property – which is a fine strategy, by the way – then you should thank the agent for him time and bow out. That way, no one wastes another minute trying to get the deal put together.
We find that buyers and sellers often have misconceptions about commissions, and believe that real estate agents are pocketing a lot more than they actually are. While some agents earn a terrific living selling real estate, the truth is that that the typical real estate agent learns far less than $50,000 per year, according to the National Association of Realtors.
For that money, they work 24/7/365 – homes are for sale every day of the year. If you want to sell your listings, you have to put in long hours, and show the property perhaps hundreds of times. There are endless rounds of phone calls, and stacks of paperwork that must be completed.
If you divided out the agent’s commission into an hourly rate, it would be less than minimum wage. Beyond that, the vast majority of real estate agents are 1099, or independent contractors. That means they pay nearly 10 percent in taxes that employees do not pay, on top of other expenses.
Again, there are some agents who are rolling in dough. But the number of agents has shrunk dramatically during this Great Recession, as real estate continues to be stuck in a housing depression.
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