High Realtor Fees, Can someone explain?

Question

Hi everyone, We are new flippers in desirable towns where remodeled homes sell for 1.8m - 2.5m or more. I am having trouble understanding how paying the realtor 100k in fees on the resale alone (not including what they get paid when they are used on the buy) is acceptable. I searched other threads on BP about this, and the explanations were about a 400k home, for example, that works out to a modest amount per hour. However, this explanation no longer makes sense when it comes to homes that are much more expensive. Why is it not common to negotiate flat fees that are more reasonable? Why is it not enough for a realtor to get paid $10k for their service? I think that's a nice amount of money for their work. There is no other profession where someone makes so much money for doing so little. I find it difficult to wrap my head around, and I'm looking for a better solution.

I understand they service builders/flippers by advising them on what's best for their investment and managing the selling process. Still, even lawyers don't pay such high fees for professional time spent with clients.

Jay Hinrichs · Answer

good luck getting an agent that works the LUX market for 10k..

Now if the market is SO good that they just list on MLS and duck.. thats one thing.

But if its like most props in those price ranges. marketing cost might be 10k alone.

Your points are common feedback with RE brokerage commissions they are as you know negotiable. no one is forcing you to sign with a broker.

lastly most brokers in the LUX market would not even come close to entertaining what your offering.. they would be thanks but no thanks. Not worth their time.

Erik Estrada · Answer

You are also not factoring in the time realtors have to put in to build themselves to be a seasoned professional. The first few years for a Realtor, they will be lucky to even make $10k the entire year... It is a highly competitive industry because of the low barrier to entry. Everyone and their grandma is a realtor, but very few are qualified to produce the results you hire them to do. It takes time to build your client base, lender network, referral partners, and your reputation. You are not paying them to push around a bunch of papers and sign documents. You are paying for a seasoned pro, that put in the time to be the best they can possibly be, to produce the results you need. If you don't see value in that, then just do it yourself.

Jay Hinrichs · Answer

to the RE brokerage community YES they will feel they deserve it.. And YES many will feel brokers are over paid.. I have been a RE Broker since 1975  I have taken listings anywhere from 25% commissions down to 1%  and I brokered 20 duplexs a few years ago where the builder was in Trouble these sold for 230k each and I charged flat fee of 30k each.. But I did a big event in SF Bay AREA and sold them all in one weekend.. that event cost me 50k up front to put on.. And it was risk money what if I never sold a one.. as it was I made 600k in one weekend.. well had to follow up with all the escrows and inspections  but you know what I mean.. And the builder was happy to pay me he was going to be in major trouble with his bank.. then one transaction I brokered a 5 mil apartment and made 2%  so 100k.. And that one is like what your describing it was a referral ( actually from the SF event) took me a few weeks to find the property and I suspect I did not put more than maybe 20 hours into that deal..I no longer broker real estate except for my new builds in Oregon.. All the other states I hire brokers. And we for sure negotiate on commish.. In Oregon for my new project here when the market was red hot  Lennar was only paying brokers 5k to bring a buyer.. I was paying double that but these were 700k houses so 2 to 3 % like old days would have been what 14 to 21k per house I was paying 10k.. then when the rates went up and sales got tougher we adjusted up to 2% .. Then the new laws came in and we negotiate each commission as they come in.. But I never offer less than 10k or more than 2%.  We have product that is coveted.. So its all over the map.. Best of luck

Russell Brazil · Answer

You can negotiate anything you want as long as you and the person you hire agree to it. You also don't have to hire anyone at all if you so choose.

Steve K. · Answer

One thing I wish more people realized about agent's commissions is that we're not just pocketing the whole $60k or whatever the number is that you see listed on the settlement statement. We pay all of our expenses out of that which includes: broker split (my brokerage takes 22% of the total commission, this varies by brokerage and is typically anywhere from 5-50% depending on how much support the brokerage provides and whether or not the agent is on a team), transaction fees, transaction coordinator cut, income taxes (15-20% of what's left after broker gets their cut), errors and omissions insurance, MLS fees, board of Realtors dues, required continuing education costs, vehicle and vehicle insurance plus maintenance, repairs and gas, health insurance (also health insurance for the family if they are the sole breadwinner), technology fees, desk fees (office rent), marketing materials, advertising/ lead gen, etc. If the commission is $60k maybe $10-20k of that is actual profit. If the commission is $10k, that agent is basically working for a low hourly wage. I'd pick a different job if I was working for a low hourly wage personally (one with benefits and nights and weekends off).

On the listing side: I pay all the above overhead stuff plus staging, photos (including drone photos, twilight shots, Matterport 3D virtual tour), floorplans, marketing, advertising, a deep clean, signs, open house program, the works. That's why I charge 3.2% on the listing side compared to 2.8% on the buy side. You can find discount brokerages but you get what you pay for.

You can also totally negotiate commissions with agents. I did that before I was licensed and have done so with my clients as an agent. But keep the above in mind and be aware that if your agent is willing to negotiate poorly on behalf of themselves (many do and they end up not being in the business for long because of it), how do you think they will do negotiating on your behalf? A good agent will save you more on the transaction than they make on the commission by negotiating well and helping you avoid making expensive beginner mistakes (which I see all the time when people decide they don't need an agent or work with a cheap agent). They will also save you a lot of time by handling the transaction details so you can focus your time on however you make money or your family or hobbies.

It can be a fun and rewarding job at times but it's also a harder one than most people realize. Agents also put the same amount of work into multiple deals and only get paid for some of them (because sometimes deals don't make it to closing, and we only get paid at closing). A lot of times it's actually really stressful too.

A lot happens behind the scenes that clients aren't necessarily privy to and good agents spend years becoming knowledgable, learning the market inside and out to become an expert and know if a property is overpriced or a good deal, how to handle all the situations that come up and how to protect clients and keep deals from falling apart, building relationships with other agents and developing themselves professionally in order to provide value to their clients... If it weren't a high-paying job, I personally wouldn't do it. We don't get nights and weekends off, overtime pay, sick pay/ paid vacation/ any real vacation because we're always expected to be available to clients, health insurance, matching retirement plan, 401k etc. None of that which you get with a W2 job because we are 1099 contractors. Everything we make comes from the commission and if we don't make good commissions, we don't get paid well and still have all of the same overhead expenses. It's not uncommon for busy agents to work 100 hours/week so if they're not getting paid well, it's not worth it.

Erik Estrada · Answer

Just don't hire a realtor if you are not willing to pay the price lol. You cannot set up the rules and put caps on what realtors should charge since commission is negotiable. If you don't want to pay a realtor $50k+, then. don't. If a realtor is willing to accept less, they are likely new and don't have the experience or connections to sell your property.

The primary reason realtors usually charge 2-4% in commissions is because their pay is not guaranteed. You can easily cancel a listing, the property can sit for months because of market conditions and unrealistic expectations, buyer can fall out because of a bad loan or issues with the property. The pay is not guaranteed.

Imagine going months on end working with a client all for it not to close? Are they really making the money that you think they are making, when almost 85% of realtors do not even make it within their 1st 2 years in the business? You are only looking at the minority of agents that are making it in the business. And those guys are going to laugh at you when you say I'll only pay a $10k commission, when they have multiple clients that will pay them top dollar for their connections, marketing and services.

You make a point that a lawyer makes less than a realtor, but how about you switch the narrative. What if a realtor charges you a $100 per hour to market, consult with you, and circle prospect and then on top of that, take 20-30% of you sale proceeds? That 2-4% at closing is way less if you ask me...

Plain and simple, if you don't want to pay them, just do it yourself and see how far that will take you.

Rachel Weiss · Answer

in the case you are describing where you put money into an event, making a large amount of money seems to be appropriate given the risk you took with that 50k.

In my case, the towns are extremely desirable and there are tons of buyers  eager for any remodeled home. so why is a realtor that makes 2 showings and pushes a few papers deserving of 60k pay? I cannot for the life of me understand this. There is absolutely no out of pocket cost to them and they take 0 risk.

Rachel Weiss · Answer

My main question is why is it acceptable to pay 50-60k for the listing agent? Who earns so much money for 20-30 hours of work? I would love to negotiate a lower fee but I don't want to upset them. I can tell it is not common to negotiate because the realtors I am working with know that  in the past, I used a realtor who charges less (and also gives less than great customer service), and they keep telling me how bad she is and that you cannot give proper customer service when she plays the volume game. And they are not offering me a better deal. It seems like everyone is doing the standard rate and no one is challenging it. There's only that one person that is known to charge less than the standard rate but her service sucks.

As for the period of sale time, in this market everything goes within a week of being listed unless there's something wrong with the property.

High Realtor Fees, Can someone explain?

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