Real Estate Commissions: What Are You Paying For

nuwireinvestor.com, excerpts

Often buyers and sellers of real estate ask the question where does the money for the agents’ commissions 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, displays, websites and flyers.

Skill sets and tactics: The most active real estate agents have the negotiating expertise to gain the advantage in any discussion with an opposing buyer or seller. Different tactics work with different buyers and sellers. This knowledge can only come through years of experience with many different types of deals and personalities.

For those who are on the fence about whether or not to use an agent, U.S. News & World Report posed the question this way: "Do you have the time and energy to take on a part-time job that pays a tiny part of the selling price of your home? If the answer is yes, consider going solo. If not, hire a pro."

Ultimately, those who used agents in their real estate transaction were overwhelmingly satisfied with the results. The overall conclusion is that by using the services of real estate agencies one saves time, stress and quite often, money.

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