Are Real Estate Commissions Really Outrageous?

Let's face it; no one likes paying thousands of dollars to real estate agents, most of whom drive big flash cars.
But, are real estate commissions really a rip-off, or do they simply reflect the value and importance of the
transaction that's taking place. I guess, to be fair, it really depends on the final outcome and what each property
finally sells for. Anyway, it is a subject that seems to aggravate home buyers and sellers alike.

Read on, because here are some points to consider before hiring an agent or deciding to sell your home yourself.

The fact is; real estate commissions can vary from state to state and country to country. The key thing to
remember, however, is that commissions are almost always negotiable. In some countries the seller (vendor),
pays a flat real estate commission of 1% to 5% and then pays for all marketing costs on top of that commission
fee.

In the USA, real estate commissions vary between 4% to 10% depending on the type of property, current market
conditions, and the motivation of the seller. Around 6% seems to be the most typical commission rate. But again,
this is usually negotiable.

Many people wrongly assume the entire real estate commission goes to one person. Typically in the US, real
estate commissions are divided four ways: the listing agent, the listing agent's broker, the buyer's agent and the
buyer's agent's broker. Referral fees and franchise fees can also influence the amount paid and the actual
dividing up of the commission.

Real estate commissions article continues...

Then there is the big expense of running office equipment, computers, cell phones
and vehicles. And, you may have noticed that most agents like to drive clients around
in late model vehicles. Maybe this is extravagant, or maybe it is just their way of
saying "I'm successful!" And, not forgetting the cost of signs and advertising which
together can amount to a considerable cost.

So, real estate is a business with many expenses and without the luxury of a
guaranteed weekly paycheck. It is also an industry that has its ups and downs.
Interest rates and economic confidence are just a couple of factors that can have a
major impact on the real estate market. Most agents who have been in the industry
for some time will have experienced boom times as well as lean periods.

Frankly; at the end of the day real estate agents are out there to earn a living just
like everyone else. They need to be competitive in order to survive and prosper.
That is why real estate commissions are almost always negotiable. The agent's want
your business! They want your real estate commission!

With that said, agent's also want "profitable business." So, when an agent shows a
property to a potential buyer, one thing they generally look at is how much real
estate commission is being offered. Agents typically will show homes offering 3%
before the ones offering 2.5%.

Trouble is the real estate commission system can work against sellers. If your home
is offering only 2.5% to the other agents, it may get fewer showings. Your property
will therefore be exposed to fewer potential buyers. As a result; you will be helping
other seller's get their homes sold first.

Whereas; if a listing agent were to offer 3% to a buyer agent on a 5.5% or less listing
contract, it could produce a different outcome. This scenario would reduce costs to
you (the seller) along with good marketing incentives for other agent's.

So, let me summarize and review:

1) The real estate commission is negotiable
2) The commission is usually split amongst several parties
3) Know what the commission split is going to be and how it may affect you
4) The agents are entitled to earn a living and more than likely will do an excellent job
5) Real Estate Agents have skills and contacts that many of us don't have

Finally, don't dismiss the possibility of selling your home FSBO (for sale by owner). Selling your home yourself
could save you thousands in real estate commissions. Thousands of others have successfully sold their own
homes - why couldn't you?

© Noel Peebles, Market Leaders ebooks

Real Estate Tips To Buy Or Sell A Home - 15 Questions To Help You Choose A Good Real Estate Agent