How do Realtors get paid?

By
Real Estate Broker/Owner with Cornerstone Business Group Inc 0225086119

I had a revelation a couple of weeks ago, and it explained a lot to me. I'm sure all of you brainiacs have thought about this before, and I have to a point, but I finally realized that real estate buyers do not have a clue how a real estate agent gets paid. I have been a pretty steady listing agent for a number of years now. So, this idea wasn't an issue for me. This year I've had buyers come out of the woodwork and most of them have been recommended to me by friends. That puts a little more of an onus on me to take care of them.

I've been working with multiple buyers simultaneously in the worst buyers market in a long time. All of the buyers I'm working with are first-time buyers with little cash, if any, and moderate pre-qualification numbers combined with less than desirable loan types compared to the cash offers that are flooding our market. Some of them need closing costs assistance, or what I like to call a pathway to renting forever in this market. Over eight weeks, I've been out with multiple​​​​​​​ buyers almost nightly and weekends making many excellent offers that in a normal market would be snatched up instantly, but in this market they have little to no chance of winning a bidding war. The buyers are getting frustrated, but it hasn't slowed them down from seeing every new house that hits the market in their price range. 

On a recent weekend, I explained to multiple buyer couples that I was going to be out of town for four days, and if the perfect house came up, an agent on my staff would be available to assist them. In each case, they looked like I had just abandoned them. I also explained to them that I could not continue the pace we had been on because my client base had expanded to 9, and soon to be 11 with additional listings in the works. I explained that I would be there as often as time allowed, but I couldn't do the nightly showing events. I had other clients who were also in need of attention. I went on my trip, and was inundated with texts and phone calls from the agent in the company who was taking up the slack for me. Unfortunately, still no contracts accepted. 

When I met up with one set of buyers, they were right there asking to see more homes. After one evening event, I asked the buyers if they knew how buyer's agents get paid. They admitted they were clueless. I explained the whole commission thing and that paychecks are generally cut after a buyer buys, closes and gets the keys. I then asked them how many weeks we had been together, and I followed that up by asking how many houses we had looked at. They threw out a few numbers and then I asked them, "And how much have I been paid since we started?" They realized the one showing per night multiple nights a week over eight weeks equaled zero income. Then I asked them, how long could you go without pay? They had their own ah-ha experience. They realized they could go about a week, and we were eight weeks deep in our search.

That gave me the opening to explain that's why Realtors have a pipeline of clients and each one needs something. Ironically, they made an offer that night and it was accepted. That's one out of a long line of clients. This event really convinced me that I need to explain to buyers how Realtors are paid immediately upon meeting and starting a relationship. The couple I've been talking about realized how often they waisted my time. I would caution them on houses that were not worthy of a contract, but they still wanted to see them and of course nothing happened. Let me encourage you to not be like I've been and have that conversation right up front. Being a listing agent for the past few years has spoiled me, but that is changing right now. 

 

Comments (16)

Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Mike and Thank You for sharing this great blog with us here in the Rain.  Make it a great day!

May 19, 2022 08:39 AM
Adam Feinberg
Elegran - Manhattan, NY
NYC Condo, Co-op, and Townhouse specialist

It's a tough lesson and tough conversation to have with clients. My market operates differently but we still have overlap when dealing with clients that don't understand exactly what we do and how we do it. A lot of first time buyers here have dealt with shady agents on the rental side of the business (about 2/3rd's of housing stock in Manhattan are rentals)- where the tenant pays the broker commission. I have had to defuse lots of people from these poor experiences. Also about 70% of the housing stock available for purchase is co-op's- and the vast majority of co-op's require at least 20% down (with some buildings requiring 25%-40% down) as well as other financial qualifications- and these aren't entirely public knowledge for many first time buyers.  Still, there are other ways that creep up on buyers that we know are likely not a good use of our time- and depending on the client and their situation, we might need to explain the product and why it might or might not be a good use of their time (as well as our time). 

May 19, 2022 09:25 AM
Mike Cooper, Broker VA,WV, MD

Adam, after hearing about your market, I'm feeling pretty good about mine. 🤣

May 19, 2022 09:30 AM
Adam Feinberg

The market dynamics work for me and leverage my financial and analytic background. Some of the apartment deal structures we put together sort of resemble the structured derivatives I have worked with in my prior career. You have to get creative when co-op boards are reviewing a buyers financials- and you have clients that have unvested equity stakes, residuals, partnership income, etc. It really helps to have a finance or accounting background to be an agent here.

May 19, 2022 10:43 AM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

I think you are right, Mike.  Many homebuyers aren't aware of how Realtors are paid.  And, a lot of recent marketing that is going on regarding options to selling homes, etc., isn't helping.

May 19, 2022 05:55 PM
Myrl Jeffcoat
Sacramento, CA
Greater Sacramento Realtor - Retired

CONGRATULATIONS Mike, on having this blog FEATURED in the Old Farts Club group!  

May 19, 2022 05:58 PM
Kathy Streib
Cypress, TX
Retired Home Stager/Redesign

Hi Mike- I think there are many who have no understanding of how agents and others on commission are paid. 

May 19, 2022 07:49 PM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Mike having been a Realtor for over 27 years, I do a lot of educating up front, and if we do not click we part ways... now with that said there is also a discussion that I will do the best for them provided that they are loyal to me.... now with that said, I seldom have taken time off in the 27+ years and when I did , I still answered my phone, texts, emails... and made sure where I stayed had Internet....I sold a home when I was in Hungary and my mother passed away thanks to this strategy the home was $3million+ Endre

May 19, 2022 11:03 PM
Carol Williams
Although I'm retired, I love sharing my knowledge and learning from other real estate industry professionals. - Wenatchee, WA
Retired Agent / Broker / Property Manager

Hi Mike,
Most buyers, especially first-timers, have NO clue how agents get paid. Those who have bought and sold have a better understanding of all that. Upfront education (as Endre eluded to) is so important.

May 20, 2022 03:44 AM
Eileen Burns
Trans State Commercial RE Ft. Lauderdale/Miami/Palm Beach - Fort Lauderdale, FL
FLorida Real Estate Connector

Mike Cooper, Broker VA,WV, MD congrats on your double feature😎

Imperative to have this discussion right up front.  Also, you may wish to include to stick to your criteria;

obtain the mortgage pre-approval upfront with estimated closing costs;

times you both can be available to preview; current market conditions; 

what the closing agent does or does not;

the expiration of their current lease for first-time buyers;

moving company availability

AND do not make a big purchase (a truck, furniture, marble mantle) between now and the closing date.  Happy Friday

May 20, 2022 10:14 AM
Mike Cooper, Broker VA,WV, MD

Great advice.

May 20, 2022 10:53 AM
Diana Dahlberg
1 Month Realty - Pleasant Prairie, WI
Real Estate in Kenosha, WI since 1994 262-308-3563

I usually have a BAP (Buyer Agent Presentation) with a buyer before we go shopping so they understand "agency relationship" -- and that includes how we are paid.  So I leave no stones unturned.  With that said, I also let a buyer know I'll show them as many houses as they want to see and that has worked for me.  Nowadays, the inventory is so low and we find ourselves doing the one showing at a time thing, which is really not such a good use of our time. But if we find the right one and write an offer and are lucky enough to be the WINNER -- it's a win/win for everyone.  It's all about perseverance.  It does pay off!

May 20, 2022 05:22 PM
Mike Cooper, Broker VA,WV, MD

Diana, it's a crazy market everywhere. Yours sounds like mine.

May 20, 2022 06:08 PM
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker - Retired

Good morning Mike. Must say I like your approach. Once people understand, and often they do not, that time is money things change. Enjoy your day.

May 21, 2022 05:28 AM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Hi Mike - it is true that they really have no clue.  If they knew the work and expertise they would be more understand.  The same goes for sellers.

May 21, 2022 07:00 AM
Hannah Williams
HomeStarr Realty - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-820-3376

Mike Cooper, Broker VA,WV, MD  my husband used to say to me ( and we used to have many arguments as he wanted me to get a real job) that if I calculated how much I really made per hour I made less than minimum wage 

Glad Carol Williams featured missed this

May 21, 2022 05:28 PM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Good morning Mike,

I'm so glad Carol Williams featured your post in her Second Chance Saturday Series as I missed it. Great way to educated your buyers..in a seller's market it's very hard to be a buyer and get rejected so often! They need to understand how you get paid..its a lot of work for a buyer's agent!

May 22, 2022 07:15 AM
Ed Silva
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

With some of these buyers it should be broken down to an hourly rate and that alone could cause a massive coronary

May 22, 2022 06:31 PM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker/REALTOR® - Kalispell, MT
Helping your Montana dreams take root

You're absolutely correct. Buyers do not know how we get paid unless we share the information with them. I'm glad that specific buyer got under contract!

May 23, 2022 05:07 AM
Jan Green - Scottsdale, AZ
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Excellent point Mike, and great blog.  You explained it well.  I'll take your advice and start that conversation early and often!  

May 24, 2022 02:31 PM