September 19, 2018
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 they actually make? And how does their compensation structure work? Unfortunately for the industry at large, most agents’ lives are not reality TV worthy.
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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 agents become more experienced and have more past clients, they become more valuable to the brokerage and their splits usually increase. 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 an agent, they will split the commission with that agent’s broker. This is also called a “co-broke.”
Commissions are almost always a percentage of the purchase price. In NYC, under the REBNY Co-Brokerage Agreement unless the seller says otherwise, all member firms automatically offer to split the total commission 50/50 with any other member firm.
Certainly, some agents make much more than the average and others earn nothing. It’s important to keep in mind the average real estate agent in NYC only does 2-3 deals per year. This foots with the data below. With 2.5 deals/year, a 70% split and $50,000 average commission, an agent would make about $87,000.
Some agents are making way more than this. Even on properties listed for eight or even nine figures, commissions are still 2.5% or 3% per side meaning there are individual commission checks getting written for well over $1 million!
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 confident showing their home and negotiating with potential buyers, they may be concerned about marketing the listing. 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 depending on the MLS, all the big real estate websites as well. Other than a fee of a few hundred dollars, sellers only pay the commission for the buyer's agent (what would have been the co-broke). We have post that explains the pros and cons of listing with a FSBO if you are considering this route.
Since commission rates are set by the seller and listing broker, a commission rebate is the only way a buyer can negotiate how much their agent gets paid. A commission rebate is exactly what it sounds like - your broker gives you part of the commission they are paid for your deal. Commission rebates are also called buyer rebates. It’s important for buyers to realize any brokerage can offer a commission rebate. Whether they are willing to be a different story.
Unfortunately for buyers, most brokerages will not allow its agents to give commission rebates or, if they do, they are very small. A listing agent at one of NYC’s largest brokerages recently tried to steal one of Yoreevo’s buyer clients by offering a commission rebate on the property in question. It didn’t take a genius to realize the listing agent’s offer of 0.25% was a bit short of the 2% offered by Yoreevo.
Buyers sometimes wonder if commission rebates are legal. New York is one of 40 states where receiving a broker commission rebate is allowed. The New York’s Attorney General and Antitrust Bureau encourage their use as a means of increasing competition in the real estate industry and ultimately reducing overall real estate commissions when buying and selling real estate in New York. Buyers should always ask for a commission rebate when buying property. If you’re not satisfied with the response or the amount, make sure to ask Yoreevo. With Yoreevo, you’ll always get the highest rebate without having to negotiate. Whether you’re just getting your search started or are wondering the commission rebate available on a specific property, we’re always happy to help.
Yoreevo is reinventing the real estate brokerage model for both clients and agents. As a Yoreevo agent, you'll spend your time working with clients, not finding them. The same efficiencies that allow us to lower commissions also allow our agents to spend their time productively, generating revenue. We expect all of our agents to earn more in their first year than the averages mentioned above.
If you're interested in working for Yoreevo, please contact James McGrath at email@example.com.