The general public, I believe, is under the misconception that if you charge for a service is MUST be of a better quality than a service that is free. For example, many lawyers and accountants charge upwards of $250 per hour. Realtors® also provide a service, yet we do not charge by the hour.
This is how Realtors® are paid. A Realtor® represents either a buyer or a seller in a real estate transaction. Traditionally, sellers agree to offer a pre-determined percentage of the sales price in exchange for a successful closing—and all that goes along with it. For example, a seller could sign a Residential Listing Agreement and offer to pay 6% of the purchase price in commission. This six percent would be shared (usually in equal parts) between the buyer’s brokerage and the listing agent’s brokerage and is reduced from the seller’s net at the end of the transaction.
Say, for example, that the sales price is $500,000. Six percent of $500,000 would be $30,000. The $30,000 would be shared between the brokerages of the listing agent and the selling agent.
A common reaction to hearing that an agent will be making $15,000 is that it sure sounds like a lot of money for one little transaction. And, $15,000 is a lot of money. However, that $15,000 does not go directly to the agent who represented you. The agent must share with the brokerage, pay for advertising, Errors and Omissions Insurance, office fees and any other expenses associated with the transaction. Additionally, the agent will pay taxes on the commission later on.
Now, in a short sale transaction, the commission is approved by the seller’s lender and comes from the buyer’s purchase money that is being paid to the bank in order to resolve the short sale. The seller makes no money on a short sale transaction and pays no commission.
Believe it or not, Realtors® do a lot of things for free. Since we do not charge by the hour and only make money when deals close, we frequently prepare Comparative Market Analyses, attend and host Open Houses, prepare marketing materials—all without being paid a penny.
While it is always nice to hear the phrase, “How much do I owe you?” My answer is simply, “You do not owe me anything for this appointment. I do hope that you will please keep me in mind for any future real estate needs and feel free to refer me to anyone you know who might benefit from my services!”