Would you agree not to get paid until everything is completed?

By
Real Estate Broker/Owner with Terry Bishop Realty LLC

Realtors®are one of the few careers where people do not get paid until the transaction is consummated.  Think about it, would you work for weeks without a paycheck, knowing you will not get paid unless the task was completed? 

Most people see a big commission, let’s say 6%, and believe that agent receives the entire amount. Let’s say the property hypothetically is $200,000 and the commission is $12,000.  What happens to that money? 

First of all, the commission is determined between the seller and the agent, no one regulates how much people are paid.  Payment is usually made at the close of escrow, after the transaction has recorded with local government officials. 

The buyer’s agent generally received half of the 6%, or 3% so that $12,000 is now $6,000.  The buyer’s agent has to pay for his, her expenses and broker’s fees. Realtors®are independent agents and pay all of their expenses:  gas, automobile insurance at commercial rates, dues, continuing education, advertising, Internet expenses, mobile telephone, web site design, medical insurance, office fees, and their percentage to the brokerage and franchise fees, which can be as much as 50%, so that $6,000 is now about $2,000.  And because they are independent agents, they pay both the employer and employee portion of FICA or 15.3%.

There is the misnomer that all of these costs are tax deductible.  I took someone to lunch and she ordered the most expensive things on the menu and then said “you can afford it, it’s all tax deductible”.  As gently as possible, I corrected her and told her yes, the $50 lunch was tax deductible but only at my marginal tax rate.  If my tax rate was 20%, I could deduct 20% of the $50 or $10 if it was 30%, I could deduct 30% of $50 or $15.00.  The deductibility is based upon the marginal tax rate which is the highest rate one pays.  The difference between what is deductible and the cost comes from my pocket.  This was a revelation to her.  Most people believe one can deduct dollar for dollar which is untrue.

Realtors® have a high rate of joining an agency, then leaving the business because it takes a long period of time to become established.   Several months without a paycheck is frequent and there is no stipend paid by the agency during this period.  If you an agent doesn’t produce, there is no pay. 

 

Comments (2)

Tom Arstingstall, General Contractor, Dry Rot, Water Damage Sacramento, El Dorado County - (916) 765-5366
Dry Rot and Water Damage www.tromlerconstruction.com Mobile - 916-765-5366 - Placerville, CA
General Contractor, Dry Rot and Water Damage

I hear comments like this with regards to tools and equipment - It's a write off! 

Dec 08, 2014 10:18 PM
Terry Bishop
Terry Bishop Realty LLC - Tucson, AZ
Earning Your Trust and Confidence...

Thanks for the comment Tom.  I think people believe the "write off" myth because people who don't know, say "oh it's tax deductible" and so they think the entire cost of tools, equipment, lunches, whatever - is totally tax deductible.  I can appreciate where you are coming from!  And as a GC, I know you have things stolen all the time!

Dec 08, 2014 11:56 PM