Could you show me the money? Well, how would I earn my keep as a real estate agent? Or better still, how do industry experts such as Tenerife Estate Agents earn a living?
Typically, if you plan to sell a property(land or building), you have to part with a percentage of the value of your property as a commission. In most cases, agents earn compensation for the sales they make. But that’s not all. Here’s an in-depth analysis of how the process works and the alternatives to such a structure.
Normally, real estate agents are like independent contractors. When a broker hires you as a contractor, you should expect to earn commissions only. There are no fixed or pre-determined rates; commissions are based on mutual negotiation and agreement between the broker and the agent.
Agents usually work under designated brokers. They are also not at liberty to receive commissions from clients directly. Instead, commissions are paid to the broker, who splits the proceeds with the agents who are part of the particular transaction.
Before a broker receives compensation, a listing agreement needs to be in place. This is a binding contract detailing the terms of a listing between a broker and a seller in question. The agreed-upon rate is negotiable between the parties involved.
Across the U.S., the rates are between 4% and 6%, but these may vary depending on the market. Ordinarily, the onus is upon the seller to honor their end of the deal by paying the commission.
As a result, the commission tends to be part of the asking price in most cases. It is, therefore, safe to assume that the buyer bears the cost by paying a higher price. Depending on the agreed split with their broker, an agent’s cut can be anywhere between 40% and 60% of the commission. Also, commission splits vary from one brokerage firm to another.
Sharing of Commissions
Think of commissions as a pie that needs to be shared. A typical transaction has at least four beneficiaries: the listing agent, the buyer’s agent, and two brokers (one from each side of the divide). Each party is entitled to a slice of the pie, meaning the commissions are split four ways.
In some cases, the pie is split among fewer parties – implying a larger slice for everyone. For instance, a buyer who acquires property directly from a broker allows the broker to enjoy the full proportion of the commission. In other instances, a listing agent may serve as an agent for the seller and buyer, allowing them to split their fees with their sponsoring broker.
Atypical situations may also allow experienced agents to earn 100% of the commission. For instance, if a broker hires an agent known for their penchant for promptly finding buyers and closing sales, they may be more inclined to accept ‘desk rent’ instead of a split. Desk rent is an agreed-upon fee that an agent pays their broker. Some arrangements allow an agent to pay a desk fee and a small proportion of their commission.
The Salary Model
Some real estate agents who are part of a brokerage firm earn a salary. An agent can expect base pay and commissions for their sales by working for such brokers. Other perks may include bonuses based on various criteria, such as customer satisfaction ratings.
Similarly, real estate developers who hire experienced agents to find leads and sell their properties usually put them on a retainer. They also offer incentives in the form of performance-based commissions. Salaries also vary from one state to another as they have to account for various factors such as cost of living and experience.
Salaried programs offer agents who are still learning the ropes a safety net. Typically, closing a sale can take weeks or even months, and an agent relying on a commission might find that the going gets tough if they have to make do without earning for a long spell.
What Happens When You Don’t Close a Sale?
Not every transaction settles. Simply put, not every lead results in a sale. But technically, a seller may be inclined, in some cases, to pay a commission to an agent even if they don’t make a sale. Let’s suppose you are an agent and have a buyer who has already offered to acquire a property. Well, in such a case, you can still demand a commission if the seller does the following:
- Opts not to sell
- Has a defective title
- Tries to defraud the buyer before the transaction settles
- Fails to deliver possession of the property to the buyer within a given time
- Introduces new terms not included in a listing agreement
An individually negotiated listing agreement may also factor in a contingency that entitles an agent to a commission, even if a sale falls through. Such provisions prevent sellers from taking advantage of the situation by short-changing agents or brokers.
Now you know how real estate agents get paid. If you’re a seller or buyer, consider discussing the terms of engagement with your agent to reach a mutually agreed reference point before settling a transaction. Overall, Tenerife Estate Agents are proficient intermediaries you can rely upon if you plan to acquire or sell a property.