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THE MYTHS OF REAL ESTATE COMMISSIONS

Today, more than ever, real estate clients are questioning the value of real estate agents’ services. The growing popularity of discount and
fee-for-service brokers is evidence of this phenomenon. Part of the reason is the Internet which causes both buyers and sellers to believe they hardly, if ever, need a Realtor® anymore. Buyers think they can find the home of their dreams online and sellers think they can find buyer in cyberspace. So who needs an agent?

Obviously, clients need agents more than ever due to the increased
complexity of real estate transactions, higher standards of disclosure
including mold and other toxics, and the highly litigious society in which
we live. In spite of these issues there are two overriding myths that
clients hold about agents and brokers that are slowly killing the real
estate profession:

Myth #1: Realtors® do absolutely nothing to earn their commissions. Sellers think that all agents do is put a sign on the lawn and an ad in the paper and houses simply sell themselves. Buyer believe that all agents do to help them purchase the home of their dreams is drive them around and collect a huge check. Is it any wonder sellers want to cut our commissions and buyers want kick-backs from our fees? When the author first realized this he developed several lists of over 100 things that we do to earn our money for sellers, buyers, expired listings and for-sale-by-owners. He then packaged these into guides for clients including sample real estate contracts and relevant articles. This really helped to justify the value of his services. No client has questioned his fees since he developed these lists.

Myth #2: Realtors® make too much money for doing almost nothing. As the author travels across the country he finds the same problem. Think about what potential clients believe – On an average home sales price of $300,000 people believe that an agent makes about 6% or $18,000 on every house we sell. They know we go to work every week, six or seven days a week and assume we sell a house a week. Even with two weeks’ vacation that means in an area of $300,000 homes people believe agents earn $1.5 million a year – to do nothing! Is it any wonder buyers are asking for part of our commissions? The author developed a chart showing after deducting the commission split between the listing and selling offices; the broker’s cut; expenses of earning the commission such as MLS dues, automobile expenses, advertising, etc.; and paying one of the highest tax rates in the country as self-employed persons agents only net about ½ of 1% of the sales prices of a house. So on a $300,000 house an agent nets less than $1,500 to do over 100 activities to help our clients.

So whose fault is it that both buyers and sellers believe that Realtors® do absolutely nothing to earn an incredible amount of money? Obviously, it’s our fault for not educating our clients about how hard we work and how little we actually earn. The fancy cars many of us drive to keep up the facades of successful real estate professionals do not help either.

If we want our clients to value us and our time it is our responsibility to educate our clients about how difficult real estate truly is and how we earn our money. If not, the assault on commissions will not only continue but escalate. After all, most people who earn $1.5 million for doing nothing are in jail. Many clients assume that we just haven’t been caught yet?

Each one of us needs to explain to every one of our clients how we earn our money and how little we actually earn. Write down all of the activities you do to help your clients and you’ll be amazed at how complex real estate is today. Your clients will be surprised as well. Next, compute how much you really net from each transaction after expenses and taxes. It’s an enlightening and somewhat frightening experience.

Don’t expect any real estate organization to take on this challenge. We
must take the responsibility to expose the myths of real estate before they put us out of business.

About the Author: Michael “Soon” Lee, CRS, GRI, has been licensed since
1977. He is the author of “111 Ways to Justify Your Commission” (Kaplan
Publishing, 2007), a national real estate speaker and the author of several books on marketing real estate. Michael has spoken at nine National Association of Realtors® conventions and for numerous state associations across the country. Michael is President of EthnoConnect™ the Multicultural Sales Solution and can be reached at (800) 41-SPEAK or by e-mail at: michael@seminarsunlimited.com. .

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