Commissions – where do they go?

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By Margie Harper


In today’s economy everybody is looking for a bargain. If you are buying and selling your home you are no different. But have you ever really thought about where the commission you pay your Realtor is going?

Commissions are negotiable, and it is not unfair or unreasonable for consumers to ask about the fees that are charged in real estate transactions. It may seem that anyone can sell real estate and yes, you probably can, but do you know all the ends and outs of what is needed or takes place?

A Realtor has a larger volume of potential buyers. A Realtor has the expertise that can protect you from the risk of lawsuits. A Realtor will save your investment of time by doing the work you have to do if you sell a home yourself. A Realtor can help you price the home correctly by doing comparative market analysis. And a Realtor can screen buyers for qualifications.

In establishing a relationship with a Realtor to assist you to sell or purchase a home there are steps that are required. These include education, experience and time that are accountable by the Realtor. Up front Realtors have costs that include education; licensing fees; transportation, including all costs to maintain a vehicle; marketing materials about themselves; and association fees, which include the multiple listing service, local, state and National Association of Realtor dues.

Initially a first visit would be required for you to decide to use a Realtor, minimally taking one hour of his or her time. In listing a home it is important that the Realtor makes certain all of the information is correct. The Realtor would have to tour the property, possibly suggesting fix-up items to make the home more appealing, and review the marketing process with you. Realtors would have to put up the “for sale” sign, which they have to pay for. If they use a lock box they would have to install that. In some locations of the country the Realtor has to buy these, others are leased from the local associations and are included in their fees and dues. They would also have to take photos for advertising and for their own records. This includes again the costs of time, initially the camera, ongoing, the film and development; or if they use a digital camera, there are still costs for photo paper and disks for storage.

Marketing a listed property can get expensive, and realistically it may not sell. A lot of Realtors have open houses where the property can be shown to a larger number of potential purchasers in a short time frame. This could take up to four hours of the Realtor’s time, and could include cost of refreshments, if served, and the promotion cost of the open house.

Other costs included in advertising are the preparation of the ads and placement such as on the Internet, in newspapers and home magazines. It takes time to create good ads and decide how to use them. The Realtor may use a brochure box and would have to cover the cost of the box. In creating a flyer the Realtor has to create the graphics and the costs of printing of the flyers. Some companies use the “Talking House.” It takes about three hours to write, record and install a single “Talking House.”

When your home is listed you expect your Realtor to communicate back to you about market events, along with feedback about showings, etc. Regardless of your position, seller or buyer, the Realtor representing you would have to arrange the appointments for the showings. Some buyers want to go back and examine a house for a second time. The Realtor would have to be available for these follow-up showings.

Finally, you find the perfect home and the negotiating process begins. It could go back and forth several times with your Realtor being the center of the transaction. Follow-up work may be needed to complete the transaction and your Realtor would handle this. After a contract is accepted and closing time arrives, the Realtor has to review closing papers making sure they are correct and watching out for your best interest. The Realtor then has to physically attend the closing.

We can all figure the percentages of the commissions and sometimes it looks good. But what we perceive is not always what is real. To begin with, not all homes sell. If the home does not sell there is no commission, but time is still involved and advertising still has to be paid. Second, one Realtor may not get all the money. If another Realtor brought in the purchaser, a portion would go to the other Realtor and his broker. Third, the commission is typically split between the Realtor and his broker. This share does not include the fees charged by the company, which covers the Realtor's portion of overhead to keep the company running including utilities, staff, office equipment and franchise fees that are paid to parent companies. We do not want to forget Uncle Sam, who wants his portion of the commission, along with the state and local governments.

To understand somewhat better let’s take an example. If a commission is $6,000, with $3,000 going to the other Realtor it leaves $3,000. For some reason or another, which may include brokerage fees, the company takes 20 percent off the top leaving $2,400. The Realtor still cannot forget taxes and saves another 20 percent leaving about $1,920. In 2008 the average days on the market for sales in the Heart of Kentucky Association of Realtors has been 150 days. With what is left, without taking out the Realtors cost of marketing the house and other expenses, the Realtor made $12.80 a day. If the house did not sell, he makes nothing.

You can negotiate the commission and you can sell the house yourself, but in choosing a Realtor from the Heart of Kentucky Association of Realtors, you add value. These Realtors work through the real estate transaction process daily and with their expertise and professionalism understand how it affects the interests of their customers.

Margie Harper is executive vice president of the Heart of Kentucky Association of Realtors.