Understanding Fees of a Listing Agent in Real Estate Sales when Selling Your Home

So, what do the fees that agents charge really cover? The real estate industry in much-maligned especially when it comes to fees that agents charge, so let's first dispel two commonly-held myths:

1. Agent Fees are Set: Untrue. The fees an agent charges are set by the agent, the agency, or the situation. Anti-trust practices prohibit colluding among agents and agencies, so while there may be 'usual and customary' practices, there are no regional, state or national mandates.

2. The agent keeps all the money: Unless you're an agency of one, agents split their commissions with their agency. Splits vary widely between agencies but two basic tenants are common; there's a split between the agent and their agency, and in most places, the 'listing fee' is split between the listing agency (the one with the sign in front) and the BUYER-side agency, to entice buyer-agents to show the house to potential buyers and bring offers.

What does this look like in practical terms? Follow this example:

You have a house in a nice subdivision. You and your listing agent agree that the house should be priced at $199,900, and the 'fee' to sell your house will be 6% of the final sale price...if the house sells for full price ($199,900) and the agreed-commission is 6%, a total of $11,994 goes to the listing agency.

Of that $11,994, half stays with the listing agency ($5,997), half goes to the buyer-agency ($5,997). Agents cannot be paid directly; they must be licensed by the state and work for an agency to be legally paid. This assumes there are two sides to this transaction, and that's common. Sometimes the listing agent represents a buyer and seller (illegal in many states because of conflict of interest), so a 50/50 split is not always the norm.

Note the listing agency (not the agent) gets $5,997. Splits vary widely depending on the contract the independent agent has with their agency, but typically start at 50/50 and go up depending on volume. A 75/25 (agent gets 75%, agency gets 25%) split is common, (though many new-to-the-business agents starting at a national franchise begin at a 50% split), and 95/5 split is available at some agencies once targets are met.

In this example, let's assume the split is 75/25, so the agent pockets $4,497.75. There are up-front costs to list the house (some agencies provide signage and the like, but agents must provide everything else). The agent needs to prepare the sellers and home for sale, providing wisdom and insight into good staging techniques; due-diligence with the local municipality finding liens, outstanding mortgages; advertise and promote, creating some sort of flyer/brochure; create an on-line presence and load the listing into other prominent additional nation-wide real estate sites; hire a photographer or videographer (or should); enter the listing into the MLS for other agents to see; perhaps buy a lockbox; hold an open house, or pay some else who is licensed to hold a public and maybe agent-only open house; show the home to unrepresented buyers. All this before the seller gets an offer and negotiations begin, which is really what you're paying for; expertise and advice to negotiate the best deal.

But also from that $4,497.75 are general overhead costs that lots of small businesses owners have: taxes/tax preparation, insurance, annual licensing fees and MLS dues, REALTOR fees at the local, state and national levels; legal fees; cell-phone, printer and office expenses; fax machines, vehicle costs...It's a lot and each paycheck goes to cover the out-of-pocket expenses up front PLUS everything else above.

That $4,497.75 doesn't travel very far considering that a house might be on the market for a few months (that sum comes out to minimum wage for a lot of agents) and agents are last to get paid...if the deal closes. If the property doesn't sell, or the owner takes it off the market, money is spent, but none is earned. Most agents have to make up costs in volume of deals closed annually. Good agent or bad agent, the monetary reward is the same.

If you're thinking about selling and hiring a listing agent, make sure you're ready to sell. Proceeds from the sale of your home aren't a get-rick-quick scheme, but part of a strategy tat most agents employ to stay in business over the long haul, even through tough times.