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Why Do Realtors Charge So Much?

Why Do Realtors Charge So Much? | Today I'm Home
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David Bolton

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March 19, 2021

If you hire a realtor to help you sell your house, most of them will charge you a commission of between 5% and 6%. So, why do realtors charge so much?

Realtors are worth the commissions they charge because they will help with pricing the home, market the property effectively, screen potential buyers, schedule showings, negotiate offers and keep the closing process on track.

Let's take a closer look at how realtors get paid and the justification behind the commission rates they charge and tips of how to save on realtor fees.

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Understanding Realtor Commissions

When you hire a realtor to help you sell your house, you will pay them through real estate commissions. While some realtors charge a flat fee for their services, most usually charge a percentage of the property's sale price.

And as noted above, the average realtor commission across the country is 5% to 6%. Assuming that your house sells for $300,000 and the realtor charges a 6% commission, then this would amount to $18,000.

Justification Behind Realtor Commissions

On the surface, a realtor earning $18,000 after selling a house for $300,000 may look like a lot of money. And you may be probably asking yourself why you have to pay so much money just to sell your house. Well, here are the reasons that justify the commissions that realtors charge:

Realtors Don't Keep the Entire Amount

As much as the realtor will be handling most of the work, they will not keep the entire commission amount once the property is sold. First, the commission will be split 50-50 with their agent.

Using the above commission amount of $18,000, the realtor's listing agent will walk away with $9,000 and the realtor will take $9,000. In short, the realtor will only take home 3% of the commission amount.

And even at 3%, the commission may still look like a lot of money. The problem is, the realtor will still have to take care of other expenses, using their 3% cut.

For instance, most real estate transactions usually involve a licensed real estate broker. And the realtor will have to pay the broker using their cut from the sale.

On average, the amount of the realtor's commission that goes to the broker ranges from 10% to 15%, which translates to approximately $900.

After paying the real estate broker, the realtor has to take care of other expenses like memberships to relevant real estate bodies, marketing costs for their websites, business expenses and continuing education, among others.

So, when you deduct all these expenses from the realtor's 3% cut, they will take home approximately $4,000. And when you divide this by the number of hours worked, then it translates to around $28 per hour.

In short, the realtor will be earning approximately $28 per hour working for you. As you can see, the realtor's take-home amount is not as big as it appears on paper.

Selling a Home is Not Easy

When it comes to selling your house, you will first have to figure out its right market value. Pricing your house right will help to attract more buyers. Also, it will help to sell your property faster, and at the right price.

But the reality is, pricing a home right is a skill that's mastered over time. And this is where the realtor will come in. Having handled similar properties and transactions, they will know how to price your home right, so that it doesn't stay too long on the market.

Apart from helping you to price your home right, your realtor also has to spend time and even money, marketing your home. Marketing will help to increase your property's visibility on the market, thus helping to speed up the sale.

Your realtor will know when to advertise, the platform to use and the best methods to apply.

Also, the realtor has to follow up and negotiate with potential buyers, negotiate the offers, fill and complete the required paperwork and deal with the various parties involved in the sale.

And even after you've accepted the offer, the realtor has to ensure the closing is properly done, to prevent issues down the road.

As you can see, selling a house is not as easy as putting it on the market and waiting for offers. It's a lengthy and challenging process, which requires the services of a skilled realtor. And this further justifies their commissions.

Top Realtors Will Help to Sell Your Home Faster

Currently, there are more than 2 million active realtors in the country. And the chances are, there are thousands in your area alone.

With so many realtors competing for the same number of clients, some may approach you with a lower commission rate. And you may be tempted to hire those charging a lower rate.

However, if you want to sell your property faster and for the right price, then you will need to hire a realtor with a powerful skill set. According to recent surveys, top realtors will help to sell your property for as much as 10% more compared to the average ones.

Top realtors know their markets like the back of their hands. So, they will help to sell your house within a fewer number of days, get you the money faster and ensure you earn top dollar for your biggest asset.

So, when it comes to getting value for your money, hiring the best realtors is definitely worth the cost.

Tips for Dealing with Realtors and Saving on Fees

Without a doubt, the 5% to 6% commission rate that realtors charge is justified, especially if you find the right person. But this is not to mean that everything is set in stone. You can still save money on realtor fees, without compromising the quality of the services offered. Here are some tips for saving money on realtor fees:

Discuss and Agree on Everything Upfront

When you are hiring a realtor to help you sell your house, it will be highly advisable to discuss and agree on everything upfront. You also need to agree on the timeframe.

Also, make sure that everything discussed and agreed upon is put down on paper. Having a legally binding contract between you and the realtor will save you lots of issues down the road.

For instance, some unscrupulous realtors may promise to charge you a lower commission, so that you can hire them. They may then surprise you with additional fees down the road, thus cutting down your earnings from the sale.

But when you have everything on paper, you will only pay the agreed amount at closing. And this will help to keep costs manageable.

Ask if the Rates are Negotiable

Most realtors are unwilling to negotiate their rates. And this is their right. However, others may be open to negotiations. If you are lucky, the realtor may be willing to negotiate their commissions and you will end up saving money on realtor fees.

Don't Compromise Service

As much as you are looking to save money on realtor fees, you should never, in any circumstance, compromise on service. For instance, you may be approached by discount brokerages, who claim that they charge a flat-rate fee or lower commissions.

The problem with most discount brokerages is that they only offer basic services such as listing your house on multiple listing services. You may also come across some realtors who will charge you lower commissions, only to charge you additional fees for things like professional photography.

So, before signing that contract, you should ensure you are clear on what the realtor is offering. From there, you can then decide whether the services you are getting are value for your money.

Offer Attractive Rates to the Buyer's Agent

When selling a house, you will also be paying a commission to the buyer's agent. And you may be tempted to offer low commissions, in an attempt to save money.

The problem is, the commission you are offering is usually displayed everywhere your home is listed for sale. And if the commission you are offering to the buyer's agent is too low, some may be less motivated to show your house to their buyer.

Another issue with offering low rates is that the buyer's agent may require the buyer to cover the fee, thus making your home more expensive.

If possible, you should offer attractive offers to the buyer's agent. When you do this, the buyer's agents will be more motivated to show your house to more potential buyers.

Shop Around

Just like any other major transaction, it will be highly recommended to shop around and interview several agents.

During the interview process, you will get an opportunity to know their rates, and the services they are offering. And with that information, you can then choose a person whom you feel offers the best value for your money.

Also, shopping around may create some type of internal competition among the realtors. And there is a high chance that some may be willing to offer high-quality service at a lower commission rate.

Selling a home is not an easy process. Besides being hard to determine the right price for your house, completing the transactions is not easy. Furthermore, most real estate transactions involve financing, which adds another layer of processes. But when you hire a realtor, you don't have to worry about all the above issues. While it may appear expensive to hire a realtor, it's well worth it.

Need to sell your house fast?

Sometimes life happens, and you need to get out of your house and mortgage payment quickly. Our partners have helped many families going through foreclosure, divorce, and more.

GET AN OFFER NOW

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Why Do Realtors Charge So Much?

About THE AUTHOR

David Bolton

Hi! My name is David. The Today I'm Home team have spent years with home related projects and researching new ideas. Now we're bringing our knowledge to you, and continuing to share what we've learned as we continue to grow. Let us know if you've got any tips and tricks that would be great to share with the community!

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