Are Real Estate Fees Negotiable?
I think you already know the answer to this question even though you asked, but let me clarify for you. As with pretty much everything else in life, real estate fees are in fact negotiable. Having said that, unlike the Wal-Mart’s of the world, real estate is in fact a service industry. Simply put it is heavy on labour with relatively few transactions.
While there are many different business models that consumer has to choose from, it is a fact that the best agents do not discount their fees. The reality is based upon the law of supply and demand and there is simply not enough of him/her to go around as it is.
This holds true for any profession. Carpenters, lawyers, accountants you name it, the cream will always rise to the top and the best in any field will always be busy. Good agents rarely charge any more than the prevailing rate. Consumers know this and there is never a shortage of paying customers who want only the best. They've been through it all before and want no part of the so called discounts. Very often, what is offered up as a savings actually turns out to be a nightmare, and a very costly one at that.
While there is a lot of negative press being disseminated, mostly by competing discount brokerage firms, independent web-sites who imply that real estate agents are not needed at all and the media who love to create controversy, the fact remains that Professional real estate agents are worth their weight in gold. They should be viewed as business partners. The more money they can make you, the more that they will earn. This is especially true for real estate investors and repeat clients. Like stock brokers, real estate agents who are currently not actively involved in the buying and selling of real estate for their own benefit can earn you a lot of money. They are worth their weight in gold but that relationship must be earned by both the agent and the client for it to continue to thrive on a long term basis.
For example, I pay my investment advisor an annual flat fee of 2% of the my entire investment portfolio value each and every year! (not including real estate - he comes to me for that) He is worth every penny of it because he helps me to make wise, informed decisions. He is very good at what he does. If I was an investor who was constantly grinding him on the commissions, it’s quite probable that he would find another investor who appreciates the value that he brings to the table. He might even be deserving of a bonus for an exceptionally profitable transaction. I am confident that he will work very hard on my behalf to make sure that he earns his keep. He knows that unless he performs for me, I will find someone else who will.
Let me try and break down the commission structure a little.
A typical listing commission earned on a $300,000 home in Calgary would be in the range of $6500.00. This is before expenses. From that there are many expenses which need to be covered.
- Federal Taxes – Roughly 22% - $1430.00
- Brokerage Fees & Expenses – 15% (Varies) $975.00
- Advertising and promotion $1500.00
- Office/Auto Expense - $500.00
- Total Expenses - $4405.00 Net to agent - $2095.00
Of course this is a rather simplistic accounting. An actual accounting would include many more expense line items such as bookkeeping, labour, charitable donations etc. Hopefully the agent has earned his fee by providing excellent service and advice to you in order to maximize your profit. He is also required to work 24/7, or have systems in place to accommodate to that.
If one could appreciate the amount of hard work and effort that professional REALTORS® everywhere invest in your business they would be in a position to better understand the good value they are receiving. Everything is expensive these days. Real estate fees very often have their own built in escalation on the fees due to the fact that the brokerage fee is usually calculated as a percentage of the selling price.
In times of inflation, the brokerage fees typically go up, and during a period of deflation, the fees typically go down accordingly, to mirror the extra disposable incomes and also the higher expenses of everything else around them. Only the very best agents make it to the top of the income ladder, due to a magical combination of dedication, sales and people skills, business acumen and marketing brilliance. They can make incredible amounts of commission, but are few and far between. I read somewhere that the average agent sells only 1 property every two months, so they are probably supplementing their income some other way.
Here are some similar real life consumer transactions which will put things into perspective for you.
1 set Siemens Hearing aids - $6,000
Technicians time investment - 2 hours
Ceramic or Gold Crown - $1500.00
Dentists time to mold and install - 2 hours
Incredibly Crooked Fence Installed on the cheap - $3200.00
Time Investment by Tradesman - 2 days
Replacement fence installed by reputable fence builder after dismantling the discounted fence
Additional Cost - $3900 - Contractors time - 2.5 days
Very Moderate Home Renovation (Not shown) - $40,000
Labour Portion - $20,000
Time Investment by Tradesman - 1 week
Most real estate agents put in far more hours working their listings than these examples require. Now I know that I may well receive some flack from the discount trades. They will say that their service is just as good if not better than mine. I guess I'd could only respond to that as would a person much wiser than I once did; "If it doesn't make sense then it isn't true!" - Judge Judith Sheindlin
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