Broker commissions
Earning your living strictly on commissions earned is a double-edged sword. On the one hand, you are compensated based on your hard work and creative abilities to bring two parties together. On the other hand, you’re subject to forces sometimes beyond your control, resulting in zero compensation.
Real estate professionals are paid a percentage of the negotiated sale price of a property at the time of the property closing. Commissions are not regulated by any federal or state governing authority, but rather are an agreement between the listing agent and the seller at the time the listing agreement is signed. Commissions are always negotiable but generally are within a point or half point of what is acceptable in the region where the property is located. An agreed upon commission can also depend on the value of the property as well as the level of marketing the listing agent promises to perform.
With the proliferation of on line real estate services in recent years, real estate commissions are becoming more and more an issue to be discussed rather than just accepted. Per a recent survey by the discount-brokerage firm Surefield (which charges 1.5 percent) the United States has one of the highest commissions paid at between 5 and 6 percent. This is down by a full 1 percent since 2002 and is way above the average commission for all of the different nations polled at 3.4 percent.
The international survey involved 17 different countries, of the 17 the commissions in only six of the countries either remained the same or increased. Mexico was the only country that was above the United States at 7.5 percent, which is where Russia was in 2002, but now is at 4 percent. The other three English speaking countries in the survey were Australia at 5 percent, Canada at 3 percent and the United Kingdom at 1.5 percent.
Argentina, France, Italy and Japan commissions are closest to ours at either 5 or 6 percent. China, Finland and Hong Kong were all 2 percent, and Germany, Greece and Israel were all 4 percent. Sweden averaged 1.5 percent just like the United Kingdom.
Per Surefield, one of the reasons the commissions paid in the United States are high may be partly because of buyer’s agents, something that is not common outside of the United States. A buyer’s agent specializes in representing buyers, in other words their loyalty is to their buyer not to the seller, which is the case in most brokerage arrangements.
Buyer’s agents give full disclosure to their clients regarding other buyers interested in the same properties and are obligated to show all properties the buyer is interested in that fits their criteria and budget, as well as keeping their client’s financial and personal positions confidential. In return, buyers must work with their buyer’s agent exclusively and not call or provide personal information to other agents. If you’re working with a buyer’s broker, expect to sign a written agreement with him/her regarding the above, as well as other possible restrictions. However, unless your buyer’s broker requires you to compensate them directly, most buyer’s brokers are paid by the seller by splitting the commission between the listing agent and the buyer’s broker.
My position on real estate commissions is like most things, you get what you pay for. On line brokerage companies can do a lot, but there’s nothing like a firm handshake to make you feel comfortable. At one time, I thought working on commission was the most fulfilling way to earn a living and that nothing could replace a hands on local broker to help you with the most important financial decision of your life. Now, brokers must compete with both the flesh and blood brokers as well as the cyber ones. Welcome to the brave new world of real estate.