Real estate has been front and centre in the media for the past several years. One of the main things grabbing the headlines is real estate commissions, and why wouldn’t they? A $1,000,000 home sale can mean a $50,000 commission and when the public looks at that it is natural to think real estate agents make way too much money.
The media portrays us in a light that makes it seem all we are doing is cashing cheques, but of course that isn’t the only thing we do. This post isn’t to argue that real estate agents make too much money; it is to highlight some of the misconceptions about our industry, what you probably don’t know about our day to day job and some of costs that are associated with being a successful real estate agent.
- Not every client is a “Home Run”
As a general rule of thumb, 15% of people we assist never actually end up buying or selling a home. I’ve staged homes for sellers who have decided it’s not the right time, I’ve taken buyers out for months looking for houses that end up getting discouraged they can’t find anything and I’ve had investors literally walk away from deals because they couldn’t check their ego at the door.
Not to be left out there is the classic “free home evaluations” we do for prospects who may decide to use someone else, sell privately OR have no actual intention of selling their house and are just a little lonely in the daytime.
2. We are on call 24/7
You probably know someone who is “on call” for work. Usually people who are on call do rotations with other people in the business and get paid, regardless if they work or not. Why? Because being on call isn’t glamorous, but it is a part of our everyday life.
We could be eating dinner, at a family event or getting ready to binge watch some Netflix late at night and if our phone rings or we get a text we jump up like a fireman responding to a call. We are never really OFF work and ask anybody who is married to or friends with a real estate agent and they will tell you it takes a huge toll on relationships.
3. Our job doesn’t end once you buy or sell your house
Unlike other professions that bill for everything they do, real estate is still very personal and our relationship extends well beyond the transaction.
Have a question about your house? Need a recommendation for a contractor? Want me to come over and have a look at something to give you my opinion? I will 100% be there and so will many other real estate professionals.
This is a part of the service we provide and something that is very valuable and reassuring to our customers. When you work with us, you have a relationship for life and can pick up the phone anytime and get advice, which is a pretty valuable resource to have.
4. Listing a house costs money
We invest our money in a listing upfront, usually close to 20% of our commission. Pre listing home inspections, staging, photography, video tours and mail outs are just some of the things we put our money into for a listing. Along with the upfront cost there is a lot of time devoted to making sure a house is ready for the market.
While this is absolutely necessary in order for you to get the most money for your house, we have no guarantee that a house will sell and the seller assumes zero cost or risk if it doesn’t.
Imagine putting 20% of every potential pay cheque towards ensuring that you actually end up getting one.
5. We pay brokerage fees
Every licensed agent has to belong to a brokerage in order to trade in real estate. If you want to be a part of a reputable brokerage with good training, support and reputation in the industry it will cost you anywhere from 10%-30% of your gross income.
To give you an idea, I spend $26,000 per year to be with my brokerage. I do this because the training is amazing, the support is first class and it is the largest real estate company in the world. All of this benefits my clients.
This does not include our insurance premiums and our membership to real estate boards, which is also a mandatory requirement.
6. Our business has overhead
As much as I like the idea of taking all of my meetings at Starbucks, it’s not the most professional environment. I’ve also been forbid to have any staging furniture at my house forevermore.
Renting an office, storage space, website and marketing, seminars, vehicle expenses, phone bills… I could pull out a Rolodex but to keep it simple most agents spend 10% on operating their day to day business. Again, this is an expense we incur regardless if a sale comes in or not.
7. We don’t have health benefits
One of the benefits of having a conventional job is you likely have company health insurance… I envy this. When I bring my kids to the dentist and they don’t have a cavity I feel like I won the lottery because that is a $200 expense that is out of pocket.
So is pretty well anything else health related and that number adds up pretty quickly. I have a lot of friends with benefits (get your mind out of the gutter) and they have a tonne of things offered to them that cost people in sales a lot of money.
8. We do have to pay the tax man
We are not exempt from paying income taxes. This one always gets me because some people honestly believe we put that cheque into our pockets and go on our merry way. We have to pay taxes just like everyone else. The marginal tax rate on $100,000 is slightly over 26% and that comes right off the top.
Of course on the surface it looks like we make a bunch of money but for most successful real estate agents the pre-tax take home income is roughly 60% of the commission we charge. Selling your house costs a lot of money, but so does selling it for 3% less than the asking price because you don’t think agents are worth what they are charging.
It is perfectly fine to have questions and you should know exactly where your money is going and how it will benefit the sale of your home. I have always been an advocate for transparency in real estate commissions and that is why we operate by separating our realtor services for sellers and the value added services that compliment a listing.
I hope this post has given you some insight on what it takes to be successful in our industry and if you have any questions you can always drop us a line.
Timothy says:
Hey just read your article and found it to be quite helpful. There seems to be many misconceptions about the career. I’ve been considering it for some time and I think a lot of us aspiring to be in this field don’t know the half. Seems like the first couple years may be just enduring debts unless you luck out with many sales. Can you give more details as to how much the license fees are once training is completed ? Also what can one expect to pay monthly for working with some major realtor companies ? I’ve seen some places say annual license fees can be up to 4500$ and monthly fees upwards of 600-700? Are these figures accurate ? Thank you for your help !