Real Estate Commissions: What are You Paying for? Willmar MN

In the United States, real estate agents traditionally earn a commission of 6 percent of the purchase price of a home. That number is not set in stone, though; this month's issue of Consumer Reports includes the results of a questionnaire that found that only 46 percent of sellers tried to negotiate a lower commission for the real estate agent, and that 71 percent of those who tried were successful. No matter what rate they paid—from 3 percent or less to 6 percent or more—more than 80 percent of sellers were satisfied with the service provided by the agent, including a competitive market analysis of the home. "Sellers who paid commission rates 3 percent or lower were just as satisfied with their brokers' performance as those who paid 6 percent or more, suggesting that haggling can't hurt," according to Consumer Reports.

But, whether a commission is 3 percent or 6 percent, where does that  money come from, and what does it cover? Real estate commissions are usually paid directly by the seller, but both buyers and sellers ultimately pay the commission as a part of the overall transaction. Here is a summary of the general benefits that both buyers and sellers gain from hiring experienced real estate agents:

Tour time: The collective activity of every agent that shows a specific property with the intent to persuade a buyer to take action. Tour time gives both buyers and sellers exposure to the market. If a property is shown three times per week over a period of six months, that amounts to 72 to 144 hours per property of tour time. This includes setting appointments, meeting, driving and showing only; it does not include buyer education and preparation.

Buyer education and coaching: Real estate transactions can’t happen if buyers don’t take action. Both buyers and sellers benefit from buyer education that explores the benefits of homeownership and investing. The collective activity of buyer education—and coaching on how to buy, what to buy and the financial preparation required to buy—is invaluable. The average buyer needs data and coaching every week for a period of six months. This can amount to more than 50 hours of communication per buyer, and this time can double in slow markets in which buyers take longer to make purchasing decisions.

Data that can be leveraged: The collective activity of thousands of agents researching and listing properties creates historical data that both buyers and sellers can leverage for their advantage. This information is now available widely on the Internet, but the primary sources of this information are real estate databases which are updated and maintained as each transaction happens and as each bit of data is collected, amounting to hundreds of thousands of hours per day on a global basis.

Marketing: The cost of marketing a property across various media, including newspapers, the Internet, e-mail campaigns, brochures, letters,...

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