Housing prices have been making headlines for the last few years. And with the soaring prices comes the discussion around affordability and whether Realtors charge too much in real estate commissions. From comments about “outrageous fees and for what?” to “my last realtor did so little work”, it is a topic I have had to address on more than one occasion. For this reason, I wanted to share some insight into what a real estate agent does to earn their commission.
Did you know most Relators work a minimum of a 40-hour work week, some escalating well beyond this number to ensure they are accessible at all times? Real estate transactions can cause a lot of fear and worry, so a Realtor needs to be proactive and readily available to answer questions or concerns.
Number of Sales
Week in and week out, a Realtor works hard to close a deal. Yet according to statistics, 1 in every 5 Realtors does not close a deal in a year. This is not an indicator of disinterest or unwillingness to work, but a reminder there are so many agents to choose from – therefore the pool of homes for sale or available buyers is heavily diluted. So what is the average number of sales? For most Realtors, it is six.
Cost of Doing Business
By now you’re probably thinking – six sales, that’s a lot of commission! Unfortunately, this is where we get into the cost of doing business.
First, there are Realtor commission splits. In Ontario, the rule of thumb is 5% of the sale price – which is then split between the two Realtors at 2.5% each. Then comes the Office Splits (payment to the Brokerage). Next up, the government wants to ensure we pay our taxes! Thereafter, we have the costs for transportation (car, gas, insurance, maintenance); Dues to OREA, CREA and others; MLS Fees; Relator License; Professional Fees; Business Insurance; Continuing Education Fees; Marketing and Advertising (signage, feature sheets, website, social media, direct mail, etc); Office Expenses (Phone, Mobile, Internet, etc); Assistant for busy office; and Fines.
According to the US field data (updated December 2016), “the median gross income of REALTORS® was $39,200 in 2015”.
So while it can be easy to say real estate commissions are too high and Realtors are making too much money, there are indeed plenty of factors driving the average 5% here in Ontario. If nothing else, consider this: Higher home sale prices means there is more money for the home seller.