People have a misconception that real estate agents have a pipeline of money that flows into their pockets from helpless buyers and sellers.
While there are some very successful real estate agents out there, nothing could be the farthest from the truth in most cases.
Before you beat on your real estate agent, look at what I’ve outlined for you as to how much they actually make.
The National Association of Realtors has stated that the average agent does 7 closed transactions a year. We’ll stick with that for the sake of this article.
If you list your house for $200,000, with a 5% commission rate, the commission you’re paying out would equal $10,000. That’s a pretty hefty chunk of change! No wonder all the agents are driving nice cars!
Breaking that down further, we see that your agent has to split the commission with the selling agent, as over 90% of real estate transactions have two agents involved.
So, there goes $5,000.
Of the $5,000 left, your agent gets to split it with their broker. $2,500 left for your agent.
Since your real estate agent does not have taxes taken out, immediately a portion of that has to be accounted to Uncle Sam. Since I’m not very good at numbers, I have an accountant. Just for the sake of round numbers, I’m going to subtract $100 off to pay federal and state taxes.
We’re down to $2,400.
From that $2,400, since we have the privilege (?) of being self-employed, we have to pay out of pocket for things like health insurance. Personally, this is equal to $1,300 per month. This is a single deduction, in other words – no deductions here for any kind of 401K or retirement plan.
Down to $1,100.
Out of that $1,100, we can subtract the gas in our car driving back and forth to your listing, the postage for all those nifty mailers we did, and the cost of the virtual tours on your house, food for the open house and a whole host of “your house” related expenses. To keep this conservative, and for round numbers, I’m going to use $300.
Down to $800.
Now we get to keep this for ourselves! $800 can pay our own mortgage payment and household utilities, car payment and contribute towards our annual Realtor fees, which in this year run slightly over $800 annually.
If there’s anything left, that’s what we get to feed our family with.
Remember, this is one transaction. One a month and chances are we’re heading straight for the poorhouse. Remember, also, the National Association of Realtors reports an average agent sells 7 houses a year. Can anyone realistically live on that? Especially in a down market when houses aren’t selling like they used to?
So before you go beating your real estate agent up on their commission, ask yourself if you could, or would, walk into your boss’ office on a Friday afternoon and ask for a cut in pay. Real estate agents have families to feed as well.