You ask, I’ll tell, within reason. Here’s the scoop:
Brokers are the firms that “own” the real estate listings and hold the licenses of real estate agents (everything in this post is generalized so if I short hand the law, don’t worry about it). As a rule, with exceptions, most real estate agents are just that – agents.
Assuming a standard commission of 5%, the listing broker gets 2.5% and the selling broker gets 2.5%. This is split with the broker’s agent in accordance with whatever agreement the broker and the agent settled upon. At a minimum, 50% would go to the agent. When being recruited, agents are sometimes promised a minimum split much higher than that: 60% all the way to 90%. Commissions can also fluctuate with an agent’s sales for a given year – the more you sell, the bigger your slice.
Of course, brokers aren’t quite as generous as they might seem so most of them, but not all, tack on lots of little charges, like a 5-7% “Big Whopper” fee, supposedly to cover some of the marketing expenses for expensive homes (priced above a certain figure, like $3.5 million, or whatever), and errors and omissions coverage, etc. I know of one firm that charges its agents for open house signs which is about as cheap as one can get, in my opinion.
Agents are considered independent contractors which means no health insurance, no employer contributions to Social Security or private retirement accounts, no car insurance (required before we start carting customers around, naturally) and what else – oh! No salary – we eat what we kill, period. If it’s true that 10% of the agents sell 90% of the listings, then there are a lot of starving agents out there, which may explain why some of them grab ahold of you like a Pekenese with loving on its mind and won’t let go no matter how hard you kick them. Pathetic, but there you go.
So how’s all this work out? Let’s take a hypothetical $3,000,000 sale. The listing broker and its agent will split 2.5% of that, or $75,000. Let’s assume that the agent has had a modestly successful year and is working for a 65% split. That means the broker keeps $26,500, from which it will pay for marketing (newspaper, internet, on-line – the NYT charges something like $150 per week for each listing, I think -, magazines, etc.) plus its own insurance, office overhead, salaried staff, etc. If you’ve run a business, you know what it all involves.
The agent gets $48,750, from which she pays, say, 45% in taxes (state and federal income plus 15% SSI), her real estate dues and fees ($5,000?), a car, cellphone, health insurance, if there’s no spousal corporate sugar daddy to provide it, cheap gifts for customers who buy a house from her (ok, I don’t buy these, but most agents I know do), and whatever else she and her accountant can figure out is deductible.
Who wants to be a broker? Not I. When I ran my own law firm I was responsible for making sure the lights stayed on, the rent was paid, secretaries had working telephones (and would be paid to show up and answer them), etc. etc. As a agent I get all of that taken care of and in return I pay a modest amount of the commission to cover that. No worries, mate.
Can you get rich selling real estate? I haven’t yet, but I’ll confess that last year, a very good year indeed, I made a lot more money than I ever did practicing law. That’s probably more a reflection of my lawyering skills than it is anything else, but it’s a little -er, odd – that lawyering requires 4 years of college, usually some work experience and then three years of law school, and, in my case, 20 years experience, while a real estate agent doesn’t have to graduate kindergarten – and I’ve met those who haven’t. But we live in some watered-down version of a free market and if that’s how the respective skills are valued, I can live with it.