Why Do Realtors Make Such High Commission?

By
Real Estate Broker/Owner with Criado Realty 0548772
https://activerain.com/droplet/zBD

I was interviewed yesterday for a unique investor project by Mr. Builder. We talked about the viewpoint each of us have toward the other in terms of typical Realtor or Builder behavior. It was fun and funny. One of the things that came out of the conversation for me was an aha moment about why Realtors are commissioned based and why we get paid as much as we do per transaction. 

There are 2 kinds of people in this world. Those that hunt and kill, and those that prepare the table.  It's hard for the food preparers to understand why a hunter gets paid $5,000, $10,000, or more for a single transaction. Mr. Builder told me, "Cathy, when I had a team of marketing people I heard them complain that Realtors make too much money and that they missed something on a contract. They would get pretty darn upset over a small oversight. One day I told my marketing staff, no more complaining. You wouldn't have a job if those Realtors didn't bring you any contracts to review. Any of you are welcome to cross over into the sales side, but you need to understand my expectations."

  • Work 6 days a week, and be on call for the 7th.
  • If you are off, dress nice anyway because you may get called into work.
  • No salary. Straight commission. Eat what you kill.
  • If you go on vacation, check in once a day on pending contracts.
  • You may work 50 hours this week and not make a penny.
  • We're only closed on Christmas Day. If you get a call during your Thanksgiving meal to see a house, even if you are the host, drop what you're doing to show the house.
  • If you don't make any sales in 60 days go look for another job.

Are there any takers?

What many consumers don't understand about Realtors is that we take on a huge risk of not getting paid, even if the buyer buys a house. We can list a house and then something terrible happens at the end that is out of our control, so we don't get paid. Sometimes it looks easy, but most times isn't. There is the law of averages that makes the difficult easier to absorb; so we appreciate the easy. We aren't employees - we are at the whim of the consumer for the most part. Sometimes we make tough choices that we don't tell our clients about - giving up our kids' baseball games, missing out on family parties and celebrations. Its part of the job as a fiduciary to our clients.  It's not just about putting a sign in the yard or entering data into MLS. It's about risk and reward.  Thanks Mr. Builder for understanding the difficult nature of our job. It's not all fun and games.

Risk = Reward

 

 

Posted by
Cathy Criado President & Founder
MBA, REALTOR, BROKER, NAR GREEN, EcoBroker
Published Author
Your Real Estate Consultant!
 
999 E Basse Rd. #180-425, ​San Antonio, TX  78209​
​Direct:  (210) 560-1891
 
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Re-Blogged 12 times:

Re-Blogged By Re-Blogged At
  1. Robert L. Brown 05/01/2012 08:47 AM
  2. Donna Yates 05/01/2012 09:41 AM
  3. Bob Crane 05/01/2012 04:58 PM
  4. Dawn Maloney 05/01/2012 10:50 PM
  5. Tia Stanley 05/01/2012 11:15 PM
  6. TERRY DRISCOLL 05/02/2012 01:19 AM
  7. Brenda, Ron, Lee Cunningham & Tara Keator 05/02/2012 01:27 AM
  8. Bill Jones 05/02/2012 01:38 AM
  9. Cindy Abel 05/02/2012 02:47 AM
  10. Derek McClintock 05/02/2012 03:41 AM
  11. Monica Hess 05/02/2012 04:51 AM
  12. Thomas J. Nelson, Realtor, ePRO, CRS, RCS-D 05/04/2012 11:11 PM
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Rainer
392,732
Cathy Criado
Criado Realty - San Antonio, TX
Making Real Estate Profitable

@Hans Rosielle -

True that many people are not in control of their lives and schedules and in some cases it is warranted, in others, not. I'm speaking for the general state of real estate and client expectations.

Its unfortunate that contract law doesn't say "10 days except for holidays, except for your family event, etc" so if you have a contract that has an option period that falls over Easter, and a situation arises, what will you tell your client?   There are times we are in control of our time and times when we are not.

One can actually be sued for not responding in a timely manner if there is a breach of contract. When the law permits for an exception of religious or family holidays then we can live in a perfect world. Now if you have an assistant, etc. then there is more leeway, but we're not all able to have that luxury. 

I remember when my brother went to work retail and had to work the day before and after Christmas so he couldn't travel to be with our family for the holiday. I used to feel bad for him. Then my aunt commented, if he had a problem with it he'd either look for another job or not have applied. He had choices, and that's his choice. Same true for real estate. Just remember, if you choose not to live by your contracts then you may be in breach of contract. Just something to chew on.

 

 

May 02, 2012 09:24 AM #143
Rainer
102,059
Peter Preston-Thomas
Real Ottawa - Kanata, ON

Cathy - Nicely written.  I'm not sure that I'd give up Thanksgiving dinner.  I think there's a balance between you and Jerimiah.

May 02, 2012 10:03 AM #144
Rainer
152,807
EMILIA B COOPER, REALTOR® SFR.NCHSE.AHWD
LAROSA REALTY - Orlando, FL
Short Sales, Foreclosure & Bank Owned Real Estate

Cathy, Great Post!! Thank you for sharing with us!!

May 02, 2012 12:43 PM #145
Rainmaker
1,430,838
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

I'd love it if I could get paid by the hour.  For all the work I do I'd make a killing.  

May 02, 2012 01:39 PM #146
Rainer
29,065
Robin Ruddy
Music Row Realty - Nashville, TN

Brilliant synopsis of the life of a Realtor. A beautifully written post. Thanks!

May 02, 2012 03:10 PM #147
Anonymous
Hans Rosielle

Cathy,

It comes down to organizing. A lot of things can be scheduled by the agent as they are often in control. I.e. you can move deadlines over Holidays and such. In CO, where I practise as an independent broker, we actually have a paragraph in our contracts that addresses Holidays and Saturdays and Sundays. It offers us the option to automatically extend. 

I agree that it's important to make deadlines, but it's like a speed limit. You can organize it in a way that what needs to be done is taken care of even before the deadline hits. As long as you don't speed, you're ok. My point is that quite a few items you mentioned can be controlled by the agent. Just to say that you have to be available at all times (4 of your 7 bullets relate to this) and therefore get paid the high commissions is simply not true. That's a choice. Example: You are with a client showing houses and someone else wants to see a house you've listed. Are you going to drop that first client right then and there? You're not, because you're in an appointment. Your family and friends have just as much, if not more right to get your undivided attention as your clients. I can give you countless examples of situations where you can take control by acknowledging that you are in control, not your client. And of course, you will be able find the exception to this and as agents we deal with that. But that doesn't warrant the high commissions.

May 03, 2012 06:27 AM #148
Rainmaker
802,812
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team

Hi Cathy, I agree. i was actually working on a draft of a post that makes some of your same points!

May 03, 2012 10:17 AM #149
Rainer
25,843
Dave Kohl
First In Promotions - Chicago, IL
Real Estate Advertising & Marketing Expert

You are correct that people don't understand all that you do, but a lot of agents fail to use the opportunity to point out all they do and see what a difference it makes. Frankly, most do, including many of my clients over the years.

 

Some sellers honestly believe you just put their home on the MLS, do a generic looking ad for online and probably the local newspaper, and sit around waiting for the phone to ring. Then they think you take an offer, respond, send a contract, and then earn several thousand dollars a month later. I'm here to say that is NOT the seller's fault for thinking that. It is up to you to point out all you do, whether ahead of time or while you are doing it.

 

If you fail to update your clients about "all" you did toward selling or buying their property "this week", then they won't know you lifted a finger for them.

 

 

May 04, 2012 05:02 AM #150
Rainmaker
1,172,962
Evelina Tsigelnitskaya
SIB Realty - Sunny Isles Beach, FL
www.SIBRealty.org 305-931-6931

Dear Cathy! And all AR members.

Yes, we work 24/7 and work very hard to get paid.

I have heard from one president of the condominium - Hey, Evelina, you got easy commission!

Yes, right, I got easy commission on commercial lease - talking, writing e-mails to attorney back and forth, forcing him to write simple commercial lease to protect his customer! Easy commission. :)

Each of our transaction - it is a little peace from our heart. Most of our buyers or sellers or tenants go with us year after year. And it is because we give them our service, we give them our attention and our expertise. We are professional. OK, I don't write in English well, but I know, where to point in the property and show good sides and bad sides let my customer to make decision. And I know, most of us love our job to be a Realtor!

May 04, 2012 09:03 AM #151
Rainmaker
1,172,962
Evelina Tsigelnitskaya
SIB Realty - Sunny Isles Beach, FL
www.SIBRealty.org 305-931-6931

Did I say, Thank you, Cathy, for a great post?

Thank you!!!!!!!! I enjoy reading all commets. Great weekend to all!

May 04, 2012 09:07 AM #152
Rainer
392,732
Cathy Criado
Criado Realty - San Antonio, TX
Making Real Estate Profitable

Evelina - thank you for the kind words and extra comment to say thank you.

May 04, 2012 09:22 AM #153
Rainer
26,004
Kevin Sembrat
Diversified RCS Inc; http://www.ManhattanPropertiesGroup.com - Manhattan, NY

Hi Cathy,

You are right -- we do work so hard, and there are no guarantees! Great post!

Best,

Kevin

May 04, 2012 03:22 PM #154
Rainmaker
844,956
Thomas J. Nelson, Realtor, ePRO, CRS, RCS-D
Big Block Realty 858.232.8722 - La Jolla, CA
& Host of Postcards From Success Podcast

Great article to show what we go through or what the public "thinks" we should be willing to do, I do offer my counterpoint:

Well I never do subscribe to theses:

  • Work 6 days a week, and be on call for the 7th. My day off is protected with a vegence.
  • If you are off, dress nice anyway because you may get called into work. NOpe-shorts & a t-shirt.
  • No salary. Straight commission. Eat what you kill. True that. Reminds me of an article I recently wrote:http://actvra.in/y8n
  • If you go on vacation, check in once a day on pending contracts. Nope, I hire a backup to run things-no cell phone on vacation.
  • You may work 50 hours this week and not make a penny. Yep, see my article-http://actvra.in/y8n
  • We're only closed on Christmas Day. Actually, I'm closed 55-60 days per year!
  •  If you get a call during your Thanksgiving meal to see a house, even if you are the host, drop what you're doing to show the house. ARE YOU INSANE? No way, my phone is off, how could they reach me on this sacred day.
  • If you don't make any sales in 60 days go look for another job. Nope, I dig deeper and find a sale-been there, more than once, but still in business.
May 04, 2012 10:32 PM #156
Rainer
61,594
Eugene Lew
RE/MAX equity group - Happy Valley, OR

Very good article Cathy, and I sure hope that you cherish your builder, and do as much for him as you possibly can! Its great to have one who understands what us realtors go through.

I've worked with builders for almost 10 years, and have worked the small one-man outfits to large national outfits. Some will treat you like you they appreciate what you do.

Others will find every reason to cut you out of the deal because they feel you have no value, and that you're disposible. When they need you, they call every hour. When they don't your hard work is taken and you're discarded. Having a builder who respects what you do and doesn't abuse your desire to build the relationship is invaluable.

I understand builders face a lot of challenges of their own. They take the risk, they stand to lose their investment, and they're on the hook for their product for years to come. Therefore, they should make a good profit for their risk. We as agents are out our time, and some expenses. As long as homes sell for a reasonable price, everyone's happy. However, I find loyalty to be a 2 way streak. Like most realtors, I've worked 30 days without a single paycheck. I've had builders ask me to take reduced commissions, to help them out. Others have brought money to close so I can get paid.

May 05, 2012 05:31 AM #157
Anonymous
Hans Rosielle

@ Thomas Nelson,

 

Glad to see that there are at least 3 people in this list of 160 posts that agree with us Thomas (my post #137). Which is rather scary, come to think of it. Because that implies that 98% of the agents out there sustain the image of 24/7 availability, which in turn takes away from a professional image. Not to mention the fact that "high" commission in their eyes is warranted because of all the transactions that don't make it to the closing table.  Did anyone ever consider that the reason a lot of transactions don't make it to the closing table has almost everything to do with the fact that an agent didn't research their clients' motivation level/property/market well enough.

I guess we as agents just don't like to play the blame game on ourselves (which seems to be a socially acceptable trait in a broader way than real estate). So we'll just say we are ENTITLED to high commissions because those darn clients just make so many transactions fall through. 

This may seem cynical, but I managed a large succesfull office (over 40 agents) for 6 years, and have it from first hand experience. Let's get our heads from where the sun doesn't shine and start to reflect on our true value in the market place and take some responsibility when "so many" deals fall through. Things like: what did I do wrong, am I really suited to be in business for myself, how can I improve the next time, etc.

May 06, 2012 03:45 AM #158
Rainmaker
564,692
Jordon Wheeler
The Jordon Wheeler Group - Fairburn, GA
J W Group Real Estate Sales and Service

Hi Cathy,

Great post!  Yes, the commissions are earned and the reward fits the risks involved.  Best of success to you this year!

May 07, 2012 05:58 AM #159
Rainmaker
68,224
Margaret Hickman
Keller Williams Realty - Cenla Partners - Alexandria, LA
REALTOR, GRI, ABR, SRS

Great article!  I'm smarting from the buyers who said, "Oh, we're on commission ourselves, so we understand."  Yet, when they decided it was in their best interests to negotiate for some land on their own, they kicked me to the curb so fast you wouldn't believe it.  That was after multiple showings, doing research on various properties, dealing with his low-ball offer tendencies, preparing an offer, following up, etc. 

And, recentlky the buyers who called the referral company to ask for another agent because they felt like I didn't have the time to devote to them since I had things going on in my personal life.  I never refused to show a house to them, spent an hour at one house on a Sunday afternoon, and the most they were delayed in seeing a house they requested on short-notice on a particular day was three to four hours while I arranged for care for my husband.  As I told the referral company coordinator, you better educate them.  Most of us don't work with just one client.  There will always be conflicting appointments, child care to arrange, and in my care invalid husband care.  I have zillow.com reviews by clients who don't feel that way, and I had the same issues going on. 

There's so many people these days who feel entitled.  When they say jump, we are supposed to ask how high and jump right up to go show them houses at their convenience.  We are seen as their servants.  They don't care whether we are paid or not.  It's all about them.

May 12, 2012 12:57 PM #160
Rainer
31,614
Gilda Duhs
Coldwell Banker Residential Brokerage - Laguna Beach, CA

Great blog post and so true! Thank you for bringing up some wonderful examples, Cathy. Good luck in Texas!

Jun 16, 2012 08:20 AM #161
Rainmaker
664,648
Kasey & John Boles
Jon Gosche Real Estate, LLC - BoiseMeridianRealEstate.com - Boise, ID
Boise & Meridian, ID Ada/Canyon/Gem/Boise Counties

I am reading this months past due, but I just wanted to say that it is an excellent post.  Plus, many don't realize that we don't get paid the entire commission, some of it goes to our broker, our taxes, our insurance, our business expenses, etc. etc. etc. -Kasey

Sep 09, 2012 06:46 AM #162
Rainer
135,576
Matt Robinson
Professional Investors Guild - Pensacola, FL
www.professionalinvestorsguild.com

Wow, a builder who ACTUALLY UNDERSTANDS the nature of being a Realtor.  I'd love to have that guy in our area, as I feel like most builders here view agents as a nuisance.  They love us when things are slow, but when the market heats up, they do everything they can to cut us out of the deal...which is why I avoid new construction like the plague.

Feb 22, 2013 02:04 AM #163
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