Commission Rates
CORY REAL ESTATE is the alternative to high commission rates and brokerage contracts that do not allow a seller to avoid paying a commission if the seller locates the buyer for their home. CORY REAL ESTATE offers sellers a commission rate of 4%. Sellers can save thousands of dollars when our rate is compared to that of 6 or 7 percent. Click on the Commission Comparison Table link to see how much sellers save at various sale prices.
CORY REAL ESTATE also gives sellers the opportunity to sell their home while under contract with CORY REAL ESTATE. If a seller is able to produce the buyer for their home, with no assistance from CORY REAL ESTATE, then the seller owes us nothing!
Why Commission Rates are so High
There are various reasons why most real estate agents are unyielding when it comes to lowering their commission rate. These reasons include commission splits, the independent contractor status of real estate agents, business expenses, and competition among real estate agents.
Commission Splits
Rarely is it the case that a seller’s real estate agent is also the agent that produces the buyer for the seller’s home. In the vast majority of transactions, the buyer is represented by a real estate agent that works for another company.
The seller’s agent will advertise the seller’s home in the Multiple Listing Service (MLS), as well as what percentage of the sale price or what specific dollar amount will be paid to the brokerage company that produces the buyer for the seller’s home. At Closing, the brokerage company that produced the buyer will receive an amount equivalent to what was advertised as payment in the MLS. The brokerage company for whom the seller’s agent works will receive what remains. Following the Closing, both companies will then distribute all or some percentage of their commission money to their agent.
Most real estate companies offer their agents the traditional commission plan, with the brokerage company and the agents splitting the brokerage company’s portion of the commission based on an agreed upon percentage. Typically, a new agent will receive 50% of the brokerage company’s portion of the total commission. As new agents become more productive their percentage increases. These agents generally pay their brokerage company a moderate monthly fee.
There are other brokerage companies that offer their agents the option of choosing between the traditional plan and a plan that allows an agent to receive 100% of their brokerage company’s portion of the total commission. In return, the brokerage company will charge the agent a high monthly fee and possibly a couple of hundred dollars or more for each transaction the agent completes.
To show the impact that commission splits have on the commission of a seller’s real estate agent, let’s look at an example using the traditional commission plan. Assume that the seller agreed to pay his/her real estate agent a commission of 6% of the sale price. The seller’s agent would advertise some amount in the MLS as payment to any brokerage company that produces the buyer for the seller’s home. For our example, that amount is 2.5% of the sale price. The brokerage company representing the seller would retain 3.5% of the sale price. In the case of 50/50 commission split plans, the agent representing the seller would receive 1.75% of the sale price, and the agent representing the buyer would receive 1.25% of the sale price. Assuming that the seller’s home sold for $300,000, the brokerage company representing the seller would receive a check for $10,500 at Closing. The brokerage company representing the buyer would receive a check for $7,500 at Closing. The brokerage companies would then pay their agent 50% of their portion of the total commission. The seller’s agent would receive 50% of their company’s $10,500, which is $5,250. The buyer’s agent would receive 50% of their company’s $7,500, which is $3,750.
Independent Contractor Status of real estate agents
Have you ever heard the expression “Living from paycheck to paycheck?” Well, this is literally how some real estate agents live, not because they are buried in debt but because they cannot predict with certainty when they will receive their next paycheck. The vast majority of real estate agents are independent contractors, which means they are not employees of the companies for whom they work. As a result, all of their income is derived from commissions. For some agents, months can go by without a paycheck, which explains why so many real estate agents, especially those new to the business, are reluctant to reduce their commission and why so many leave the industry every year.
Employees in other industries have the benefit of being able to enroll in their employer’s medical, dental, vision, and life insurance plans at very attractive rates. As independent contractors, and absent a spouse whose employer provides access to such plans, real estate agents are faced with paying rates that are far less attractive or going uninsured. These expenses further depletes a real estate agent's commission.
There may be a tendency for some to forget that income taxes must be paid on the commission that real estate agents receive. Assume that the agents in the previous example fall into the 25% Federal tax bracket and add to that the Illinois tax rate of 3%, giving us a total of 28%. Subtracting 28% from the agents’ commission leaves the seller’s agent with $3,780 and the buyer’s agent with $2700. Other deductions would include Social Security and Medicare taxes, medical, dental, vision, life insurance, etc.
What was once thought to be a commission of $18,000 ($300,000 sale price X 6% commission rate) to be paid to the seller’s agent, actually turns out to be less than $3,780 after other deductions.
Business Expenses
Real estate agents have expenses that further deplete their earning, such as the following:
- Marketing of seller’s home
- Marketing to generate new business
- Association fees at the local, state, and national levels
- Monthly fees to the brokerage company for whom the agent works
- State license renewal fee
- Errors and Omissions Insurance
- Real Estate signs
- Lockboxes
- agent website
- Office supplies
- Gas
- Education
Competition
The competition among real estate agents is fierce. To obtain an Illinois Salesperson real estate license, one is only required to complete 45 hours of classroom instruction and pass a state real estate exam. The limited educational requirements cause large numbers of individuals to enter the industry, which results in fierce competition for business. For most agents, the competition also results in months without a paycheck.
There are a smaller percentage of agents that make a lot of money, and experience tells me that they would be very happy to take as much of a seller’s savings as they can get!
CORY REAL ESTATE is the alternative. We offer sellers one of the best commission rates in the real estate industry and the opportunity at paying no commission if they can produce the buyer for their home with no assistance from CORY REAL ESTATE.
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