Real estate agents are independent contractors with brokerages and work on contingency only. They are not salaried nor compensated for any of their overhead. There are no 'expense accounts' in this business. The agent pays ALL EXPENSES associated with their business just like any sub-contractor and are taxed by the government as self-employed at a higher tax rate. A real estate agent is not an hourly paid position and no 'tools' of the trade (gas/leads/dues/fees/print/mls/auto/etc...) are provided or paid for by the brokerage. By working on contingency, the agent assumes the risk by fronting all their time and monetary investments in hopes of fully procuring a deal satisfactory to all parties as evidenced by a successful closing. On average, an agent, will work 3-6 months for a client before seeing one dime in return for services. And, if for some reason the client doesn't 'close' on a transaction the agent isn't paid a penny or reimbursed for expenses. The commission on the HUD is not paid out to the agent, it is paid out to the brokerage. The brokerage then takes it's cut (typically 30-50%) and cuts the agent a check for the remaining balance. From that remaining balance the agent splits with their team/partners, if applicable. What's left the agent operates their business, pays taxes, insurance, mandatory dues, licensing fees, and invests their greatest commodity...TIME. Real Estate is not a get rich quick scheme and successful agent's make their money on volume. Not your one time closing. Statistically, 80% newly licensed agents will be out of business within the first two years of licensure. 86% of the 20% remaining will be out of business within the first five years. Why? Because of the tremendous amount of overhead and time required to be successful in this extremely competitive business.
Let's look at a typical $150,000 one sided transaction that from beginning to closed last 3 months. If you wonder why it's hard to find a good real estate agent. Just look at the math.
Net Commission: $4,500
Check to agent: $2,925
Gross Commission after Expenses & Taxes: $1,387
Compensation per hour on a typical transaction $11-$12 hour (120 hours invested)
Would you be willing to tour guide someone around the city for 90 hours, at your own expense and volunteer time, to see homes they can't or won't buy? Or, invest time & marketing at your own expense to sell a home for a net commission of $1500? People who are serious about their real estate want a serious real estate agent. Ask, yourself, 'If the agent is so haphazard with their own money and time how will they be with mine?'
It is important to note, that the federal Anti-Trust Laws prevent real estate commissions from being fixed. Each brokerage and agent will offer different commission scales and amounts depending on their services rendered and level of expertise. Don't assume if you pay top dollar you'll get top dollar service and remember you get what you pay for. I've seen many consumers loose, literally, tens of thousands of dollars as a result of discounted commission services versus paying a higher commission to an experienced agent that would have saved themselves thousands of dollars. I've, also, seen consumers pay painfully high commissions to an agent who can't be bothered to return phone calls and ultimately decide they could have gotten better service out of monkeys. Either way, the customer must be the judge and BEWARE. Get references and ask questions but don't let the 'commission' amount be your sole determining factor in who to hire. Good service doesn't just happen, it's a result of significant invested capital and time. Professional and experienced real estate agents have enormous overhead to ensure 100% customer satisfaction in an industry that is 7 days a week and governed more than terrorism with constantly changing laws and regulations.