Money

Ready to Discover the Real Truth of Real Estate Agent Commissions?

How many clients think that the estate agent who’s representing them in the sale of their home gets to keep the full 5% real estate agent commission?

After all, isn’t that why sellers are so quick in demanding lower agent commissions from their representatives? And this before the estate agent(s) even had a chance to service the sellers.

We realise that this topic is a sensitive one for quite some people, as reactions to our previous articles have shown. This time around, using the extra figures provided below hopefully takes away most of the ambiguity regarding the commission structure.

Employment benefits…

Let’s start with the agents’ status of employment. Unlike the vast majority of the workforce who are being paid a salary, this is not the case for real estate agents who are independent contractors.

Besides not getting a steady monthly salary paycheck, there are no medical, retirement or other extra social benefits. All of this needs to be funded by the agents themselves.

Operational expenses…

As we all know, estate agents are paid on a contingency basis. In other words, no money will head their way until the job they were asked to do has successfully been completed. Furthermore, the commission (at least in South Africa) doesn’t get paid out to the agent until registration date, which can easily be 3 months from the original date of contract signing.

The hours spent preparing for the marketing of a property (photography, description, distribution, newspaper ads…), driving around showing multitudes of potential buyers the new listing, doing handfuls of Sunday showhouses etc are all costs carried by the agents, regardless whether they are successful or not in actually selling the property.

Costs such as (but not limited to) internet, mobile phone, gas, client coffees/lunch/dinner bills, marketing materials, newspaper advertisements, professional legal representation, accounting and administrative bills can add up very quickly.

Real estate agent commission breakdown…

Let’s use an example of one successful sale per month of a R2,000,000 house (about USD200,000) at 5% commission or R100,000.

Right off the bat, the agency will take off 7.5% (standard figure used) for royalties, given the majority of real estate offices work on a franchise type business. Then, depending on the agency-agent commission split arrangement of the standard 50-50 (or highly-experienced agent’s 40-60), half of the commission goes to the agency. Let’s say the agent was able to get a referral from a helpful colleague which cost him another 20% of his commission.

If you have been tracking the math: R100,000 – 7.5% royalties is R92,500, which is divided by 50% comm split or R46,250 and then minus 20% referral, leaves R37,000.

The average estate agent is likely to have around R10,000 monthly professional expenses and will have to pay an income tax of around 25%, which leaves him with shy of R20,000 income. Any social benefits, medical coverages and retirement savings will need to be further reduced from that amount.

In the end, R15,000 is likely to be the true amount the real estate agent will get in his hand.

Closing thoughts…

Knowing that 80% of all real estate deals are done by just 20% of all estate agents only makes you stop & think even more of what the average real estate agent commission paycheck amounts to.

Next time you overhear somebody say that real estate agents are making a killing with their high commissions, perhaps you could tell them the real truth.

Were you aware of the above information? Can you share with us whether this article has changed your opinion on real estate agent commissions?

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