October 30, 2020
With reality shows glamorizing the real estate brokerage industry, it would be fair to think real estate agents make tons of money. After all, there are juicy commissions available on countless properties across New York City. Just knock out a few seven or eight figure deals and you’re set!
But how much do agents actually make? And how does their compensation structure work? Unfortunately for the industry at large, most agents’ lives are not reality TV worthy.
If you are an agent interested in working at Yoreevo, please email us at firstname.lastname@example.org. As a Yoreevo agent, you'll spend your time working with clients, not finding them. We expect all of our agents to earn above average incomes in their first year.
Many people are not aware that almost all real estate agents work as independent contractors for their brokerages and earn income only on a commission basis. A real estate commission is a fee a brokerage collects for helping a buyer purchase a property or a seller list and sell a property. All transactions run through the brokerage. A real estate agent will collect a portion of this overall commission depending on their agreement with the brokerage.
The portion of the commission that goes to the real estate agent is often called the agent’s “split.” As an agent become more experienced and with more past clients, they become more valuable to the brokerage and their split usually increases. There is no good data on splits but Yoreevo believes the average split in NYC to be about 70%.
Who pays a real estate agent's commission is where things get a little tricky. Technically, the seller pays the listing broker who pays the listing agent and as well as the buyer’s broker who then pays the buyer’s agent.If it sounds complicated, it is!
Usually, this structure results in sellers just asking, “How much am I paying?” and buyer confirming they don’t pay for their agent. At Yoreevo, we like to say the buyer is actually paying everyone. They’re the one writing the big check - that’s where all the money comes from!
Commissions are agreed upon in the listing agreement, entered into by the seller and the listing broker. The listing broker also agrees that if a buyer has a broker, they will split the commission with them. The commission offered to the buyer's broker is called the “co-broke.” In NYC, under the REBNY Co-Brokerage Agreement, unless the seller says otherwise, all member firms automatically split the total commission 50/50 with any other member firm.
Commissions are almost always a percentage of the purchase price.
The chart below shows information from New York's Department of Labor and you'll see the average real estate agent made about $86,000 in 2019.
Some agents are making way more. Even on properties listed for eight and nine figures, commissions are still 2.5% or 3% per side meaning there are individual commission checks getting written for well over $1 million!
It’s important to keep in mind the average real estate agent in NYC only does 2-3 deals per year. That roughly foots with the data above. With 2.5 deals/year, a 70% split and $50,000 average commission, an agent would make about $87,000.
Obviously, there’s a lot of money at stake and every dollar a real estate agent makes comes out of the pocket of a home buyer or seller so what can you do to minimize commissions?
Every home seller should interview multiple agents before choosing which will list their home. As part of the interview process, don't be afraid to ask for a discount on the commission. While some sales agents will agree to the reduced commission, others won't. A lot depends on the price range of your home, how quickly and easily the agent believes it will sell and which brokerage the agent works for. A buyer can also negotiate their agent’s commission (see #3 below).
A FSBO listing is the most obvious way to save big on commissions. However, even if a homeowner is confident showing their home and negotiating with potential buyers, they may be concerned about marketing. Flat-fee services allow homeowners to place their listing on the Multiple Listing Service (MLS) used by local real estate agents.
By listing on the MLS, your listing will be distributed to buyers' agents and all the big real estate websites. Other than a fee of a few hundred dollars, sellers only pay the commission for the buyer's agent (the co-broke).
Since commission rates are set by the seller and listing broker, a commission rebate is the only way a buyer can determine how much their agent gets paid. A commission rebate is exactly what it sounds like - your broker gives you part of the commission they receive for your deal.
With Yoreevo, you’ll always get the highest rebate without having to negotiate. Whether you’re just getting your search started or are wondering about the commission rebate available on a specific property, we’re happy to help. You can reach us at email@example.com.