People often believe a real estate agent is simply someone who knows about homes for sale in their area, hammers signs into front yard lawns, and makes a slew of money just showing up at an open house. A no-brainer, right?
Not quite. In perpetuity there have been a host of myths about how a real estate agent’s business works, and as in any other scenario where people don’t know what they don’t know, faulty perceptions and assumptions are created.
First of all, we don’t know of any Realtor being paid a salary.
Because agents sitting in model homes on weekends can’t control when their builders’ houses might be ready to sell, they may receive a meager draw against commissions. But like resale agents, they don’t get paid a fee until escrow closes and keys are handed out. So who pays for all those lavish broker events, open houses offering refreshments and fancy brochures? The agent does. No matter what an agent puts into their efforts, however, there is never a guarantee they will recoup their outlay on marketing, gas used up showing hundreds of houses to potential buyers, lunches with clients, endless hours of negotiating, time spent with home stagers, etc. In other words, no matter how gorgeous the real estate office and how fancy their brand, they each hang their own shingle and pay for it as completely as any small business person does.
Real estate commissions are another point that gets messed up in people’s heads.
They look at the entire commission (customary-but-negotiable commissions vary from area to area) being proposed by the listing agent and assume every dime goes into that agent’s pocket once settlement takes place. But here’s the scoop: commissions are legally paid to the agent’s employing brokerage company, which in turns pays both the selling and buying agents after taking out agreed-upon fees. While the same agent may represent both the seller and the buyer, it is a much rarer occurrence, which in turn carries its own complications and liabilities.
Speaking of liabilities,
most states require licensed agents to carry Errors and Omissions insurance, a separate fee paid by the agent to protect both themselves and their brokers from unforeseen contractual complications, and some have their own on-staff legal team as well. The agent’s commission split with the employing broker varies from broker to broker, often depending on the company’s business model as well as the agent’s level of production. Rookies generally have higher splits than seasoned pros.
Throw in agents paying taxes, social security and a host of other fees, and you’d see how they earn their living not unlike those in other industries — except they don’t get paid every two weeks and often can go months with no commissions at all.
So next time you see an agent (1) making 30 trips to show a buyer homes only to find that buyer decides not to buy after all (2) wielding brooms and secretly tidying up a house for showings like Annette Bening does in the movie American Beauty
(3) dealing with sellers who perpetually refuse to be realistic about what their house is worth, sometimes keeping their house on the market for a year or longer, or (4) meeting with vendors, home stagers, contractors, inspectors, videographers, etc., know they are running a business in which they invest themselves, their weekends, and their very own dollars. They do this betting their skills, the market, and their clients all converge in one happy scenario to make the American Dream stay dreamy.