Real estate agent compensation has been one of the most talked-about subjects over the last few years. With full-service, flat fee real estate companies like Purple Bricks in the UK and Everhome in the US gaining larger shares of the market plus pending lawsuits from the DOJ against the NAR (National Association of REALTORS®) it is hard not to believe that the industry is changing.
How much does a Real Estate Agent make on a transaction?
While each transaction differs, we at Everhome have found that once a seller has selected their agent, the average transaction from start to finish takes less than 10 hours of actual hands-on work—and is only being reduced with continued innovation in real estate tech. This includes, but is not limited to, adding the house into the MLS (Multiple Listing Service), scheduling a photographer, completing home valuations, vetting buyers, submitting offers, counteroffers, coordinating inspections, removing contingencies, plus coordinating title & escrow.
Currently, as of May 2022, Zillow estimates that the median home price in California is $800,172 with an average agent commission of 5.2%. Using this as an example, a home selling for $800,000 with a commission of 5.2% the total commission that would be paid out is $41,600, of which $20,800 is typically paid to the listing agent and $20,800 paid to the buyer’s agent. Given that listing agents spend about 10 hours to open and close a transaction, typical listing agents are making over $2,000 per hour.
“Given that each listing agent spends about 10 hours to open and close a transaction, typical listing agents are making over $2,000 per hour.”
To be fair, there is more than just coordination and paperwork in a real estate transaction, and they split their commission with their broker, but even if we added an additional 10 hours of additional tasks due to complications that could occur in a transaction, that still comes out to over $1000 per hour.
Are all agents paid the same?
In almost all industries and types of business, a company or individual is paid based on the quality of service that is provided. One of the most interesting and unique parts of real estate is that this is not the case. The commission is typically set as a percentage of the home’s value by the seller and seller’s agent before listing the home on the market.
When this happens, the more expensive the home is the more the seller must pay to sell the home, regardless of the amount of time, money and effort involved. In other words, the seller of a $1M house pays twice as much as the seller with a $500K, even though it takes the listing agent about the same amount of time to sell both houses.
It begs the question, “What does the price of the home have to do with the cost of selling it?”
What does the future of real estate commissions look like?
As mentioned previously, there is already lots of changes happening within the real estate industry. But as it is one of the oldest industries around, change comes slow.
One change that we are seeing is that an increased number of brokerages, like Everhome are adopting a logical, consumer-friendly flat-fee model where home sellers will pay their listing agent a flat fee that is based on the average time, money, and effort needed to sell a home rather than the ambiguous percentage commission that artificially inflates agent commissions.
Additionally, we believe that within the next 10 years there will be a decoupling of the buyer and seller commission. This means that sellers will negotiate and pay the seller agent and the buyer will negotiate and pay the buyer agent. In turn this will lead to more price competition and a better alignment of skill, time and pay.