Doing the splits

How much do most Realtors
really earn on a sale?

Tuesday, January 09, 2001

By Julie Clairmont
Inman News Features

One word can sum up the dread most homeowners have when they consider how much it will cost to have a Realtor sell their house: "Yikes!"

Experienced sellers expect it—marketing their home will come with a hefty price tag, usually in the form of a commission that they alone pay to the Realtor, or Realtors, as is often the case.

The industry trade publication Real Trends reports an average commission of 5.5 percent for 1999, based on a survey of the country’s 500 largest brokers, who are involved in one out of every four home sales in the United States.

Say you wanted to sell your $600,000 town home in San Jose, Calif. (that’s not a typo in the price), the typical commission would be about $36,000.

But defining "typical" isn't that easy, as the Washington Post reported recently. Just try to ask an agent, a broker or the National Association of Realtors, for that matter, to venture an average rate and watch how they tap dance around the question.

The numbers, they contend, are not available.

"Each transaction is separately negotiated," Walter Molony, a NAR spokesman, told the Post.

NAR collects reams of data on the real estate industry, but declines to track commissions. The reluctance is understandable, however, because federal antitrust laws prohibit any fixed commission rates as well as the discussion of fixing commissions among agents or brokers.

But what many consumers don’t realize is that one Realtor rarely receives all of the 5 percent or 6 percent commission, the Post reported. It gets split two, three or four ways, and not always equally.

In a four-way split, a share typically goes to the agent who put the house on the market--the listing agent--and is split with his broker. Another share usually goes to the agent who sold the house (sometimes the listing and selling agent are the same), who in turn will split it with his broker.

Agents also typically have to cover expenses such as brochures promoting themselves; brokers usually pay for office expenses.

Deals between agents and brokers vary. At RE/MAX International, for example, the agent gets the full commission and pays a straight fee to RE/MAX for expenses.

Although a 50-50 split between broker and agent once was common, today "a lucky broker is keeping 30 percent," said Laurie Moore-Moore, co-editor of trade publication Real Trends.

Real Trends said the numbers indicate that in extremely high-priced markets such as San Francisco and New York, the rates really start to decline, and that Realtors are lucky to hold onto a 5 percent market-wide average.

Some regions with generally lower-priced houses, such as the South, have a slightly higher average commission of about 7 percent, said Leonard V. Zumpano, director of the Alabama Real Estate Research and Education Center.

"Most real estate companies have office policies that indicate what their commission will be, and usually variation is not allowed," he said.

The emergence of online discount brokers is also a challenge to the traditional Realtor’s commission. Many analysts predict selling your home completely online will continue to be a growing trend.

A recent NAR survey showed that potential homebuyers' Internet usage has been growing rapidly, to 37 percent in 1999 from 2 percent in 1995.

Still, the market is currently dependent on agents. NAR figures indicate that agents were involved in 84 percent of house-resale transactions in 1999, up slightly from the previous year.

Even Internet users are hardly spurning agents, Molony said. In the NAR study, 87 percent of those who home-shopped online used an agent to purchase their home, compared with 76 percent who didn't use the Internet.

"The Net will not eliminate the real estate agent," Molony said. "The opposite is true--members active on the Internet make more."

With escalating costs and a substantially smaller share of the commission, brokers have contended with diminishing profits over the past decade, despite a booming market in recent years that has brought more volume and larger profit margins, especially in the past two years.

According to Real Trends, the average profit per transaction for the 500 largest brokers has fallen 57 percent from 1994 to 1999. Analysts say this is why we have such a frenzy of consolidation in the industry; companies are straining to achieve greater economies of scale.

Copyright 2001 Inman News Features