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Educating consumers on how real estate agents get paid

There are too many confusions as far as how realtors get paid in the public's eye. Thus, I feel the need to educate consumers on this issue. Real estate agents, mortgage brokers and title companies are paid only when the property a buyer purchases closes and funds. If there is a stall in the middle of this process, none of us get paid. Thus, please do not get upset if the real estate agents feel the need to "pre-qualify" our clients.

Some real estate agents require a signed buyer's representation agreement with the client. Signing this paperwork means the buyer client gives exclusivity to this real estate agent to work solely with him or her to find their next property. Some realtors may not require this paperwork. But a good agent would at least mention this and educate the buyers on how he/ she gets paid. I do not require this contract be signed before my clients and I get to know each other. However, I would ask for a verbal commitment and when I do receive it, I would work on a trust and honor system.

I would also explain that if along the way, our relationship do not go in the direction we intend for it to head, we can terminate the relationship with a termination form.

Also, real estate agents are independent contractors of the business name they are associated with. 99% of the agents are not employees. For example, Re/Max, Keller Williams and Century 21 agents pay a fee to be associated with the real estate companies. Re/Max, Keller Williams or Century 21 do not provide cars, computers and gas allowances for the agents. All these are business expenses out of the agent's bottom line.

Thus, for these reasons, real estate agents really do want a commitment either on paper or verbally (works with some) to work on an exclusivity relationship. Should the buyer uses one agent to view the property and another agent to write the contract, many confusions and commission dispute will arise. Thus to minimize this issue, again, the importance of working with the agent exclusively is only fair since the agent would be forking out the car, the gas, the time and efforts in working with the buyer clients.

Note: Definition of "Exclusivity": Contract term in which one party grants another party sole rights with regard to a particular business function.

Posted by Loreena Yeo - Broker|Realtor(R) of www.Frisco-TX-Homes.com (214) 783-2210 on 06/14/2008 11:21 AM

Comments (68)

How Real Estate Agents Get Paid in the Regional (Localism) Channel

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Originally posted at: faithfully frisco tx homes for sale: Educating consumers on how real estate agents get paid

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68 Comments on Educating consumers on how real estate agents get paid

JUN

2008

Loreena, an excellent overview of settlement, buyers agency, and being an independent contractor. It is a great educational piece for the public. Many I have gone to lunch with thought Realtors at major firms were employees. Lots of misconceptions out there.

Loreena, you have gave a great overview of how we get paid. It really is important for them to understand how that pie split.

Loreena, Thank you for sharing this. Commission is, inspite of what some may say, a very important issue. Educating everyone is the only way to go!

Have a great weekend!

Good post. There is so much confusion. If folks would only understand!

Yes, if only folks would understand. And not get upset on why we want a commitment to work exclusively.

This is a very good post and a timely one. I find with a lot of auction properties on the market where buyers are just going around viewing them that the concept of how agents work and commission really get lost. This is definitely our responsibility to educate each and every person on this.

JUN

2008

Loreena, good information for consumers and clearly explained. It is important that they understand this.

Loreena, Very well said--clear and concise! Great post. Cheers, Harley

Good post. Too often they buyers we work with don't know this and the sellers think we get to keep the whole commission... NOT with broker's cut and business expenses not to mention the time between closings we are not raking it in the way they think we are.

I think it is a good idea and bad to let them in on how we get paid.

Great timing on your post! I was just trying to educate my SELLERS on the commission structure and that the signage, marketing materials, MLS fees and staging materials are NOT paid for by my brokerage. And that once we sell the home, my broker and I have to split the commission - so what may look like a $6000 commission to me, is really ends up being about $2000 to $3000 (before taxes).

Thanks for the post!

Loreena: Great explanation of things. And as independent contractors, we normally do not keep all of the commission, and have to pay taxes out of it.

very nice post and sound reasoning on these vital points

Education is the key. I think if more buyers understood how and when (and if) we get paid, they'll be more to commit to one agent. Great post....

While this is a good post because there certainly are some generalities that apply to most agents, each state has its own laws which are NOT the same, as to whom real estate agents represent (or if they represent anyone at all - some states have "transactional" agents). As to how real estate agents get paid, that can differ from one broker to aother, even in the same zipcode. Some brokers charge an "up-front" fee, even though many others don't get paid unless and until settlement. While educating consumers is a good idea, I think we must be very careful to educate them only about how WE get paid in our state and our brokerage firm, and not speak for anyone else in the real estate industry.

Great informative post...exactly what i believe...that the public should be aware of how we get paid..i actually posted a lot about this problem on my website when i became active again as an agent...because THIS TIME ARouNd....im going to make sure i get a buyers rep agreement before i set out to help anyone purchase property....ive learned the hard way.....

Loreena, thank you for saying in a much better way what I was trying to say in my post http://www.ozarksagent.com/Blogs/home.aspx?p=1 title Using Agents. I also tried to say it another way in another blog that can be found @ http://ozarksagent.zolve.com/default.aspx and @ http://www.realtownblogs.com/manager/edit_entry.php?e_id=27391

Another post I entered was @ a website I will not give you because the people there were so vicious that I quit the site. Basically I wrote that I thought the NAR could do a lot more to help educate the public about how the buyer's and seller's agents operate and get paid so people will not think they can save money by going around the buyer's agent to work directly with the selling agent. We are not doing them any service by allowing this mis-conception to continue and they are being taken advantage of by a lot of un-ethical agents all the time, because of their lack of understanding. Again, thank you for putting it in much better terms than I could, Steve

Loreena, I knew this was a great post of yours. Congratulations on the feature. You are a terrific writer.

Good info. Thanks for sharing. Clients need to know in order to be at peace during and at the end of the Real Estate transaction. Very professional.

Educating consumers is really important. I like your explanation and the way you talk about the relationship. I think maybe if NAR could help us explain to the public in a more aggressive manor, it might help people understand just how little we often do get paid. And understand that sometimes we work our behinds off only to get paid nothing if something goes wrong.

I am very open to my clients about how much I get paid and where it goes. Most of the time, they are amazed at just how little I am paid for my time, effort, and expenses.

Thanks for writing this.

Good post! So many times clients think that our brokers pay for everything like even our health insurance. I have to pay all my expenses. I explained that one the other day to a client.

Good Job Loreena. I hear it all of the time, "SO what do you charge?" It get's old.

Loreena, this was an excellent post. I am pretty sure that most of the public thinks we have a salary that is paid by someone...

Loreena....like a couple people said, it's really different in different parts of the country. Here in Georgia, our state law requires we have a written agreement if we are going to represent a client. I've sometimes had a hard time describing what that means, but now I've got it.

Without a Buyer Brokerage Agreement you only get my hands and feet (show you property, etc) With an agreement you get my hands, feet and my knowledge about the building/community/home you are looking at. That seems to help people understand.

It's also good to sit with a buyer when you start the process, and explain when, and how we get paid. This is a good way to keep from being a "tour guide" to someone who just wants to ride around and look at homes.

HMMM, Thom and Ray, hands and feet and not knowledge, how do you accomplish that? Here in OBX of North Carolina at the beach since we deal with second home / investment property to even begin my fact finding the questions deal with Cap Rates and identifying areas of OBX, why the Asking Prices vary so, not to mention just why are the prices so high.

Not only does the public not a have a clue how we get paid, they also think that the individual agents makes very big buck -- it also is good to explain how the commissions may be split up between the agency and the agent -- and that the agent's expenses are then paid only by the agent (not the agency).

I am always amazed at how people think we get paid...and how little work they think we do for it. When we go over our program they say "Wow, I did not know you guys did so much!"

Great insight, thanks for sharing.

Great post and congrats on the feature. It is sad how little the public understands how we get paid..... or if we get paid at all. Most people would not work a couple on a job knowing that they might not get paid, yet that is what we do everyday.

Great information on a huge issue. Most people have no clue as to how agents get paid. They assume it's a great deal of money and they are not sure for what, You broke it down nicely.

Thanks for the great overview of how we are paid. I think I will forward it to a few of my clients!

Thanks for the post. Always a good idea to get a commitment although I do not always get one. I do ask them at some point fairly early on.

Loreena - Thank you for bringing this tough subject up and for explaining the process in detail. It really helps out a lot.

Terrie

Don't forget. We only get paid once the transaction clears. We're the only professionals that still make house calls too!

Veronica

Excellent post to educate the public. It is our duty as professionals to communicate what our expectations are of our clients and to find out what they expect of us...and in turn, how we are compensated for performing such duties. Congrats on the post!

Loreena, great job explaining how a Realtor stays in business. It is amazing how many people really have no idea how we are paid and assume that we get a paycheck every month from the Real Estate company to just answer the phone. Good job setting the record straight.

Good post Loreena! I usually tell my clients that in order to provide the level of service they deserve, we need to clarify my duties as an agent and how will I get paid. I explain to them the Buyers Representation Agreement and with it a termination that they can sign if they decide to discontinue using me as their agent, even if it is for one day. This way, they understand that I'm serious in this career and that we can terminate our business relationship without any hassel. Therefore, they don't feel pressure and they love that I was honest and straight to the point from the beginning.

Great post.. So many thing we get paid a salaries and drive company cars... WoW....

Great, simple explanation. This comes up all the time, and it would be good if more people were educated about it. I even joke with my buyers that I get paid on commission but that my job is to get them the lowest possible price. Almost conflict of interest, but that's how it works.

Great post. Just wanted to chime in that it is also the law here in Connecticut that prior to showing someone a property they must sign a buyers agreement with you. If I get a call on one of my listings, I will usually let people just sign in it with my listings MLS number listed on the agreement. If we hit it off and they like what I offer, then we can re-do a buyer agreement.

Loreena, this is really a tough one. I have explained it to the penny before and they still have a difficult time understanding! Others, on occassion are actually understanding and do see the value.

Later in the rain~Deb

Great explanation Loreena. We sometimes take it for granted that the public knows how we get paid.

JUN

2008

Nice post with the explanation of things. Many consumers do not understand. All the best.

Loreena, always great articles and ideas for your blog.

I had a lender and a title company rep write up a page for my marketing material on thier letterhead about how Realtors get paid. Even though we are responsible for educating our consumers, they are always skeptical when it comes to their money. So when they see it explained by a title co or a mortgage lender, it doesnt make them as uptight.

Great article. Thanks for writting it. That will really make think twice aboutpaperwor first!

As long as the industry perpetuates the dual agency models, consumers will not understand agency. Further, the signed BA Agreement doesn't guarantee that we get paid. It only give us a contract on which to proceed in court against a buyer who purchases property without making sure that we got paid through the transaction.

Too many agents believe that, if they have a BA Agreement, they will get paid. Not so. It just gives them a way to proceed to collect. Litigation on a real estate fee is often more expensive than the money that would be collected.

Good post...signing a contract if the buyer wants to be represented is not optional in Wisconsin...it's mandatory. Our license says we work for the seller unless we have a contract that says otherwise. AND...buyers, it costs no more...like being in THE RAIN...it can be the best thing you never paid for !

Lorena, excellent way to put this. Good job with the star, but most of all it is very clear and hard for anyone consumer, or reluctant Realtor to not understand.

Great post - we need to be clear about expectations on both sides from the beginning.

Hi Loreena, I hope you are doing well. Educating our customer/clients should be our #1 priority. And you can't do that without having a discussion about compensation. Well done Loreena.

Very informative blog. I do agree that educating the public that real estate agents are independent contractors and the way we are compensated is crucial to our success as agents.

If you have been doing this job long enough then you have had a family member take advantge of your services. I think we need to give this explanation earlya and require a signed contract. Not everybody will honor a verbal agreement when it comes to money

Hi Loreena - I've found it works best for me (in Ohio) if I include this sensitive subject matter as a one page graphic representation as part of a packet that I give to the customer at first meeting. First time home buyers in particular seem very receptive to any and all education they can get from REALTORS about the home buying process. If not presented with proper timing, some customers will immediately jump to a conclusion that all we care about is money. Since there are other mandated conversations such as the Consumer Guide To Agency Relationship here in Ohio, most customers are through listening long before we are through talking. Studies show that our listening and attention span is very short.

I believe its our job as agent sto educate the public on the real estate practices, including the topic on how we get paid.

Great blogg. It is always important for consumers to be aware about this and understand it. There are many people that don't understand this and are afraid to buy homes because of this

Loreena, Great post, however, I truly believe that the general public knows a lot more than they let on. They just like to push buttons, a lot of the time, just to see how much they can grind us down on our commissions.

Good post on how we get paid and buyers agency. Have a great day

Not to throw cold water on anyone, but the customers do not care how you get paid, and in many cases if you get paid. If they perceive a value when they are buying, they will gladly use your services as a buyers agent, provided they believe the seller is paying the brokerage fee and that it will not cost them anything. Heck yea! You can do all the leg work for us. When it comes time to negotiate during offer and counter offer, they will expect you to further cut your earnings in order to put their deal together.

When it comes time for these same customers to sell a home, they will do everything possible to cut you out of your commission by either going FSBO or wanting a greatly reduced brokerage fee, if they will even use your services at all. As soon as their eyes see the brokerage fee on the seller's net sheet, they cannot see the value of your services when they perceive that they have to pay for it.

Good educational post! Thanks for sharing.

I having been thinking about this quite a bit lately. Buyer's also confuse why they should be represented in any RE transaction.

George, I do agree that the consumers do not care about how real estate agents get paid. It's always the "what's in it for me" mentality. However, most clients (are generally nice and understanding people who understands that we do not drive around looking for houses just because we enjoy doing it) and I feel that they would care about how their great agents are compensated. I have had clients who would not purchase a property when they felt I was unfairly compensated. I did not provoked that thought. I felt that that was my highest honor a client could give me when they did that.

Honestly, I care alot about my clients. And the relationships that I built along the way, they too care alot about me. I would not work with a client who just treats me as a door mat. I would not let anyone treat me that way.

JUN

2008

This is great information for the Buyer. There is too much confusion relating to how we get paid. Most people are actually shocked to learn that Keller Williams doesn't pay me a salary.

I was taking clients out who were in the market. If we saw a FSBO, they would mention out loud that compensation would have to be awarded in order for them to consider the property. That made me proud of our business relationship as well as help build a lasting friendship.

I agree that it is important to educate clients about how we are paid. I find that it forges a better relationship and that I get more referrals as a result!

Coco

Loreena -- kudos to you for assembling this thoughtful piece. It'd be nice if buyers were interested in how we got paid. I'm thinking they're not to interested unless they think it's they who pay!

JUN

2008

Great, you expained it to the Tee...now I may get paid.......this may be the hardest part of working with the general public......

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