At first glance, asking a Realtors® to exchange commission payments for a direct payment from the home buying client may seem counter-productive. Yet, when you ‘follow the money' it makes plenty of sense. (This article was originally published on Active Rain. The original article link can be found Here)
According to recent figures released by the National Association of Realtors® (NAR),the average salary of a Realtor® in the U.S. is $40,000 a year. If we assume that these Realtors® work through a brokerage that gets paid a percentage of what the Realtor® grosses in a year, let's say 50%, then that means that the average Realtor® is responsible for bringing in close to $80,000 every year to get that paycheck.
Realtors who use fee-based real estate agreements can make more that with traditional agreements alone
If the average commission check is between $10,000 and $15,000 then that means that the Realtor® needs to close on about 7 homes every year to earn their salary.
Now let's factor in the cost of doing business.
Each year in the U.S. 16 million ‘Home Shoppers' engage the services of a Realtor®. Of these shoppers, only about a quarter, or 4 million, make it all the way to the closing table as ‘Home Buyers'.
This means that the average Realtor®, who sells 7 homes a year, has to work with about 28 home shoppers to find those 7 home buyers.
Bluntly put, ¾ of that Realtors® efforts are being wasted chasing after clients who will never become home buyers!
Now, let's say that a Realtor® were to offer only fee-based real estate agreements when working with home shoppers. This would mean that everything that the Realtor® did on behalf of the clients, from showing them around homes and doing research, to managing the home inspection and attending the closing, would be paid for out of pocket by the home shoppers - in exchange for a significant reduction in the price of the property (less the amount that the Realtor® would have made in commission payments.)
Realtors® offering fee-based agreements are free to set their own rates. In this example let's say that the Realtor® bills $125 an hour for their services (some home buying tasks could take several hours to complete). Now instead of only getting paid by the ¼ of home shoppers who become buyers, that Realtor® gets paid by all of their clients for the work done on their behalf.
This means that if a Realtor® spends just 20 hours a week working on helping client that they earn $2,500 in guaranteed income. This means the Realtor® grosses $10,000 a month (working just half-time) and can gross $120,000 a year. Even with a 50% brokerage split in the deal, the Realtor® still makes $20,000 above the average Realtor® salary.
But offering clients fee-based real estate agreements doesn't mean that a Realtor® can't also offer more traditional commission-based agreements at the same time. Let's say that a Realtor® offers both commission agreements and fee-based agreements is able to close on 5 homes in a year using the other 20 hours per week in their schedules.
This means grossing an additional $60,000 in commission based sales at the same time they are earning $120,000 in direct payments.
At the end of the year the Realtor® ends up grossing $180,000 and taking $90,000 of that home.
Now of course, this is only an example of how Realtors® can use fee-based agreements to increase income. Actual results may vary. However, the bottom line is that fee-based agreements mean a great deal for any home shopper who is really committed to become a buyer because they stand to save a lot of money in the process.
For those home shoppers who don't make it to the closing table, for various reasons, they are still able to get the professional services and allow the Realtor® to be fairly paid for the services provided.
There is nothing wrong with a Realtor® being paid for the work they do. There's also nothing wrong with asking home shoppers to take on the risk of the agreement and the huge benefits to them by paying for those services out of pocket.
In the end it means that Realtors® get to work with a more committed group of home shoppers and puts the risk of the deal on the shoulders of the home shopper because they can control the eventual outcome - instead of on the shoulders of the Realtor® who can't.
News & Events
Join Nucazza VP of Marketing Rob Graham for a live seminar on Thursday September 22nd...
At first glance, asking a Realtors® to exchange commission payments for a direct...
(This article was previously published in the New York Times. A link to the original...
Home Buying News
|News on Home Buying continually updated from thousands of sources around the net.|