Why list with a real estate company when they charge so much to sell my home?
This is a very good question. Like any other service based business, real estate companies and the real estate agent must provide value to the people who pay for their featured services if they wish to stay in business.
To answer this question completely, I will discuss the following:
- who pays real estate fees?
- who receives the commission?
- who provides the services?
- what costs do real estate agents incur to provide services?
- what services do real estate agents provide?
- the end result
Who Pays Real Estate Fees?
When a person who wishes to sell their home lists the home for sale with a real estate agent, the seller agrees to pay a fee to the listing brokerage (the real estate company through which the real estate agent is licensed to practice). This fee is called a gross commission in a Multiple Listing Contract. A gross commission is paid on the sale price of the home when the sale of the home completes. If the home is not sold during the term of the agreed listing contract, nothing is paid to the listing brokerage for the real estate services that were rendered to the seller by the brokerage and the agent. When there is a completed sale, the gross commission (represented by the blue circle in the figure below) is paid to a number of parties.
Who Receives the Commission?
Generally, listing brokerages offer a portion of the gross commission to the cooperating brokerage that finds a buyer for the home that is listed for sale. This is generally one half of the gross commission (area 1). In this circumstance, the listing brokerage receives the other half. From this half, they must pay out any referral fees that may be applicable to the sale (figure 2). They then deduct their own brokerage fees (figure 3) in accordance with the contract that they have with the agent. It is important to realize that the brokerage maintains office staff who provide services such as reception, sending the listing to the real estate board, maintaining the financial books, ensuring that lawyer and/or notaries who are involved in the sale get the contracts and other documents that they need, receiving and being responsible for deposits paid, and a number of other things. The brokerage also maintains a facility to accommodate agents and clients.
After these two portions (2 and 3) are removed the agent receives the remainder. From this remainder, the agent must pay their business expenses (figure 4) and income taxes (figure 5) leaving figure 6 as the net pay to the individual agent. What starts out seemingly as a large amount of money (the blue circle) can become a lot smaller by the time the agent receives their share as net pay (figure 6).
Who Provides the Services?
While the brokerage does provide services, the agent must provide most of the services to the seller and/or buyer. The type and number of services provided, along with the timing and timeliness of these services varies with each individual real estate agent. As a Designated Agent in British Columbia, the real estate agent works for you and protects your interests. They take courses such as Legal Updates to do just that through such things as the writing of legally enforceable contracts specific to the situation and circumstances of the purchase or sale.
What Costs do Real Estate Agents Incur to Provide Services?
Some of the costs incurred by real estate agents are standard and they apply to every agent. These are paid by the agent and include, but are not limited to, expenses related to:
- Licensing courses and exams to become licensed as a real estate agent
- Re-licensing fees every two years required to maintain a real estate license
- Post-licensing courses required to meet minimum professional development requirements
- Canadian Real Estate Association Fees
- British Columbia Real Estate Association Fees
- Local Board Fees
- MLS ® Access Fees
- System technical Fees
- Agency Dues and Fees (Corporate, regional and local)
- Agency training courses
- Continuing Education Courses such as Legal Update Courses
- Document Search Fees (titles, strata, registry, etc)
- Signs and Frames
- Real Estate Lock boxes
- Real Estate Lock box electronic opening devices
Many expenses will vary by agent and according to the type and nature of the services that they provide. They can include, but are not limited to, expenses related to:
- Marketing (print, online, radio and perhaps TV in large market areas)
- Advertising (print, online)
- Office Equipment (computer, laser printer, scanner, fax machine, etc.) and Supplies (paper, envelopes, file folders, real estate forms, laser ink, etc.)
- Professional Equipment (Video equipment, Video Steddiepod, photographic equipment, camera tripod, etc.) needed to take video, audio and photos to market the home)
- Video and Photo Editing Equipment / Software
- A variety of software programs (scanning, publishing, etc.)
- Mobile Electronic Equipment (smart phone, tablet and laptop for mobile operations)
- Website (creation and ongoing maintenance and hosting)
- Website Search Engine Optimization and added Website Features and Functionality
- Content Management System and Client Database
- Vehicle expenses
What Services do Real Estate Agents Provide?
Some agents provide full-time, full-service real estate services while others do not. What is meant by full-time, full-service also varies amongst different real estate agents. For example, does full-time mean 9-5 Monday to Friday? Does it include work outside of these hours? How much? How often? What is meant by full service? Does the listing agent put a sign on the lawn, place an ad in the local newspaper, add the listing to MLS ® and hope someone finds a buyer for their listing through a Comox Valley MLS search? Or, do they do much more? As a real estate client myself on many occasions; some agents did very little and were useless, while a few did a lot and were effective in selling my home.
The End Result
At the end of the day, the cost of real estate services should be measured against the type, nature and the quality of the services provided and the result – your home SOLD. When measured against these metrics, the age old adage You Get What You Pay For is generally true. Is your measure one of cost or value?
As a real estate agent and business owner, I have significant expenses each and every month. Major professional expenses include those to maintain my professional qualifications and current knowledge, and those related to effectively marketing and successfully selling homes. My other business expenses are numerous and varied. Expenses to maintain the website that hosts the blog you are reading represent a small portion of my monthly expenses. While I am pleased to provide this and other types of information to help people who have questions about real estate, I only provide real estate services to clients. Like any other business owner, I cannot stay in business if I provide professional services for free.
Why list with a real estate company when they charge so much to sell my home?
I apply the time, effort and money required to provide the services necessary to get the exposure needed to sell your home. While I will not list all of my real estate services on this blog, I am happy to discuss them with you in person.
Thinking about selling your home yourself? What are the consequences when something goes really wrong? Who is there to help? What are the most important questions and considerations? The blog titled Comox Valley Real Estate – For Sale By Owner Posted on April 28, 2012 provides insight into these issues. May I suggest that you click on the previous link and then scroll down to the third blog for important tips and questions that you should consider before you make your decision?
If you are thinking of selling your Comox Valley home contact me directly or through my website www.brettcairns.ca and let’s discuss how I can help.
About the Author
Brett Cairns RE/MAX Ocean Pacific RealtyAccredited by the Better Business Bureau
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