What's in a Commission?

With the increasing popularity of 'discount' listing brokerages as well as an uptick in For Sale By Owner (FSBO) properties, it is obvious that commission is a big deal for some sellers. When I meet with potential clients regarding listing their home there is always a sense that I have to justify my value, what I will DO in exchange for what they are paying me. It got me to thinking about where that's coming from. We all might grumble about the cost to see another professional, say a doctor, attorney, or accountant, but do we haggle and negotiate to pay less and/or demand to know they are worth the fees? Not Likely!

Here's a snapshot of being paid as a real estate agent from my point of view. Keep in mind that all brokerages are different with regard to commission structure and that there is no 'standard' commission rate, there is simply a common percentage rate for a given area. In Colorado, Sellers typically pay the entire commission for both the listing agent and the agent for the buyer(s). I've seen this amount range from 4-6% of the purchase price and can be divided any way that the Seller(s) and agent agree upon.

For example, let's take a Purchase Price of $250,000 with a 6% commission, 3% per agent or $7500. Unless the agent is independent (not with a brokerage), the check is payable to the brokerage. Most agents pay a commission 'split' per transaction which can be 75/25, 80/20, or even 50/50. So that $7500 at 75/25 means $1875 goes to the brokerage and $5625 is payable to the agent. If the agent pays taxes quarterly then perhaps 25% of that amount will go to Uncle Sam or $1406.25. Of the remaining $4218.75 there are ongoing fees for business expenses like MLS access, marketing and advertising, continuing education classes, licensure, insurance etc. As well as personal expenses for housing, food, health insurance, retirement, etc.

While this is a very generic and general breakdown of what's in a commission, I hope you find it useful when you are the Seller interviewing agents to list your house. In my opinion, the most valuable asset of an agent is NOT their market statistics, marketing methods, or their marketing plan but how well they are able to support, educate and represent YOU and YOUR needs. Go for someone that you actually like!