How do you combat people objecting to your commission?
I’ve heard the argument that the commission a listing brokerage charges is too high, and why should the seller pay that much. Let’s do some math!
Now, people need to understand that a commission is split between the brokerage(s) involved in the transaction and then the money is split between the brokerage and the broker. For this example, we will have two brokerages and two brokers. The industry standard commission split is 55% (Broker A – listing brokerage) – 45% (Broker B – selling brokerage).
So, here we go:
Seller lists their house with Broker A for $200,000, and argues that a 5% commission is just too much money but signs to list the house. Go forward 2 months (60 days), Broker B brings Buyer who writes a full price offer. Seller accepts this offer and it goes to closing. Here’s the breakdown:
Now, let’s take a look at the breakdown as if it were an hourly wage.
Brokerage A doesn’t charge desk fees, they just take a part of the commission. All professional fees are the responsibility of the Broker. The commission from this transaction is $2,750 to Broker A. Let’s say that Broker A worked on this transaction for an average of 1.5 hours per day (90 days from listing to closing). That equals 135 hours.
Broker A’s expenses are as follows:
- Professional photographer = $250
- Total advertising (magazines, newspapers, online ad) = $550
- Flyers = $50
If we remove the $850 from the broker’s commission, that equals $1,900. Divide that $1,900 by the 135 hours, that equals $14/hour. Now that doesn’t sound so wrong or overpriced, does it? Let’s check in on Broker B.
Brokerage B takes 70% of the commission, this covers desk fees, professional services, etc. Broker B’s commission from this sale is $1,350. Let’s say Broker B put in an average of 1 hour per day for 30 days on this transaction + 2 hours per day for 10 days looking at properties with this buyer. That equals 50 hours. Divide the $1,350 by 50 hours, that equals $27/hour. These are just two examples.
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