This may be obvious, but I wonder about this sometimes.
Do real estate agents in wealthy areas earn way more than in midde-class or poor areas?
How is it determined who takes what area? I would think they would all want the wealthy regions nearest where they live.
I was wondering if the big companies level off the commission so that the average salaries are the same around an area.
I think the answer is largely yes, at least per-deal. Probably a wealthier area can, to some extent, support more real estate agents who do fewer deals per year. As far as question 2, all the real estate agents I know find their own customers. I guess maybe a few people call the company and get assigned an agent, but the vast majority of clients come from personal recommendations and networking.
Ummm…
There are several “reality” shows that are basically documentaries of this:
I’m presuming if the commissions are a percentage of the sale price logic would dictate that it would take the sale of four 250,000 homes to equal the sale of one 1 million dollar home.
That was my question, basically. Do they not reduce the percent commission on expensive homes to keep things more even across the profession? I really have no idea.
Why would you think that there would be a need or desire to “keep things even”?
Here in NJ, commissions are usually around 6%, split more or less evenly between the buyer’s and seller’s agent. That tends to be pretty standard regardless of local market prices.
What tends to “even out” the market a bit is the fact that selling an expensive home is more time consuming and costly than selling less expensive homes. For example, the realtors on Million Dollar Listing spend a lot of money on marketing and staging the property. Expensive homes also tend to take longer to sell because they have fewer potential buyers.
I don’t think it is determined, at least not in the way I think you’re talking about. Let’s say I want to sell my house- I will probably ask friends and neighbors to recommend either an agent or an agency. They will probably recommend a local agency - not one in a wealthier area 20 minutes away or a less wealthy area 20 minutes away in a different direction. So one part of “selling more expensive houses” is "get a job at ( or open your own) real estate office in the wealthy area.
Sure, it’s possible that a potential buyer goes to an agent in the less wealthy area, and is shown and ultimately buys the home in the wealthy area with the two agents splitting the fee. But I will bet that doesn’t happen much - why would I go to an agent in Middle Class Neighborhood when I’m looking to buy in Wealthy neighborhood ?
A well-known example here in Chicago is Michael Jordan’s former home in north suburban Highland Park – it’s been on the market for eight years. It was originally listed at $29 million, and as of May of this year, had been reduced to $14.9 million.
I guess I live in a relatively small town (metro area ~400k). Most agents around here will certainly sell anything from a $100k duplex up to a $1M+ estate home. There are specialists in the high-end stuff, but even they usually won’t turn down a $100k quick sale - they just don’t put much effort (read money/time) into it and they usually won’t list them to avoid diluting their ‘brand’. Almost every agency has a mix of all kinds of agents since brokers like volume.
I recently bought a condo and when searching for places asked my agent about this.
She told me it was about 5-6% that the seller pays. Of course, the seller knows they have to pay this so will likely increase the selling price to mitigate that cost so “who” is paying is debatable.
She said when it comes to really expensive homes it is nowhere near 6% and usually much less. At those prices the seller has power to negotiate with the agent and agree on a percentage or flat fee. An agent selling a $10 million place is not likely to be collecting a $600,000 payday. It will be substantial but probably a lot less than that.
I think the problem is that if someone has $15-30 million to spend on a home why would they buy someone else’s super-customized home?
If I had $15 million to spend on a home I want one built to my specifications and for $15 million I can get something really nice.
Among people rich enough to pay those prices how many do you think want their own basketball court? Not many I suspect.
My only comparison is when my Dad semi-retired and took a job selling Gateway computers at Gateway stores(back when those existed). He had a really aggressive co-worker who used that job as his only income and he told my Dad that the previous year, he had earned about $60,000. However, they re-adjusted the commission rates based on overall sales and made it harder for him to get back to that level of income again. He said they examine what people are making and re-adjust things, making it almost impossible to earn a huge amount.
Anecdotal and my only knowledge of commission sales.
FWIW, here is my experience. When I bought my house in 1971, there had been a recent slump in the market (political crisis, look up FLQ) and the agents had recently raised their take from 6% to 7%. And indeed I bought the house for under 32K, when it had been sold in 1965 for 35. When I sold it 1 1/2 years ago for 31 times the 1971 price, the commission was 4%. So there is some adjustment for the average price.
Probably the best case study of this was IBM salesmen in the glory years of the 360. I couldn’t find a link to quote, but if I remember correctly, the system was so wildly successful that top salesmen were making millions, more than the President, and that forced IBM to re-structure their compensation.
The realty firm/realtors typically do handle any marketing, but when I sold my home I paid for the staging which was entirely optional. 5% tends to be the standard cut for realtors in my generally expensive area.
Sometimes they’re buying a home they’re only in a few months a year. They might have one in Chicago, one in LA and one in Hawaii (and a condo in NYC) So, they don’t need it to be super customized, just really nice.
Yeah, this. The median home in my city is pretty close to the million dollar mark these days, and that’ll be a somewhat upmarket house, but not a mansion or anything. An 1800sqft 3 bedroom in good condition will set you back around $800k.
We upgraded last year, selling our old 1800sqft ranch for $808k and purchasing a significantly nicer home for $1.025m. We used the same agent to sell the old house and buy the new house and she and her firm got 3% from each transaction.
The new house must have been the easiest 30k ever. Our offer was in and accepted on the same day we first saw the property, and we only started working with her on that day. The old one did involve some staging but we paid for it. On the other hand it sold essentially immediately. It’s a weird combination of expensive real estate yet very easy to sell right now. On the other hand inventory is terrible so it wouldn’t surprise me if the number of transactions is very low.
Big corporations that have sales employees spend a lot of thought designing a compensation plan that rewards results, but not too much. And which (in smart companies) is routinely reviewed to ensure it’s working as management wants it to.
The real estate industry is hundreds of thousands of individual salespeople who are usually independent contractors to a broker who is either a one-off entrepreneur or a franchisee of a big name, e.g. ReMax. That environment is a lot less top-down and a lot more “the local going rate is …”.
Though I agree that it’s likely the “going rate” also changes in hot markets vs cold and in high-dollar vs low-dollar areas.
Agents may not make all that incredibly much in really wealthy areas for some of the reasons mentioned above – it’s a smaller market, sales likely take much longer, and commissions are likely negotiated downward. But there’s also the question of whether there’s a lot more money to be made in high-demand middle- to upper-middle class areas, where I think the answer is “yes” if one can become dominant there, but that’s damn hard to do.
I got to know my former real estate agent quite well, because she had helped me through a very long and difficult process of finding just the right house in a very specific area I wanted, and which some fifteen years later she sold with her typical professional expertise within about two days for full asking price (which was more than a fair price according to the competitive analysis she did for the area). IIRC one of the reasons I first contacted her in the first place was that so many of the for-sale signs in this highly in-demand area were hers, and almost all of them already had “Sold” stickers on them. She knew the area inside out, practically every nuance of every street, and many of the residents because she had as likely as not been involved in one side of the transaction or the other, or knew someone who had, among her vast network of contacts.
I sort of half-jokingly mentioned one day that it must be nice to practically have a monopoly on such a hot area. She replied that she and her husband (also a real estate agent) worked very hard and long to get to where they are today. I know it’s true because all the times I’ve dealt with her she’s basically been on call practically 24/7. They have since formed their own company which looks to be very successful. So the answer in this case is that they have this area by dint of working very hard for a long time and being very good at what they do. This includes both big things like getting a good price for their client, and little things like expertly helping me prepare the house for sale, so that for relatively little cost (and some free services that she threw in) the place had never looked so good as they day of the first (and only) open house, because it was sold the next day.
tl;dr: if I told some newbie real estate agent about this nice and potentially very profitable area, he would find it basically impossible to make any inroads into it unless he had some kind of sales superpowers and magically knew everything there was to know about the area.
But that doesn’t mean that Gateway was trying “even things out” - my husband is in sales and of course knows many other people in sales. And the one thing I have never heard of is that the guy who earned $60K last year gets his commission/bonus cut so the same type/amount of sales will earn only $50k this year while the guy who earned $40K last year will earn $40K for the same sales this year. When commissions/bonuses get cut- they get cut for everyone.