The real estate business is currently booming. Property numbers are at an all-time high in the US with the prices of new listings having risen by 32.6%. While this may sound like a real estate agent's dream scenario, there's another nightmare brewing underneath.
Unlike professionals in other spheres of the industry, real estate agents do not get paid a fixed salary or an hourly rate. Their payment depends entirely on the transaction size and negotiated commission rates. As more players join the deal (brokerage firms, listing agents, buyer's agents), the transaction gets more and more complicated.
There are simply so many numbers to track! From deal sizes and brokerage fees to agent commission splits and incentives, this entire process lacks transparency and trust. More often than not, agent compensation plans vary from house to house and it is nearly impossible to use the same commission tracking process for each deal. Accurately compensating every stakeholder gets hard.
To better understand this problem and how it can be solved with robust commission management and tracking software, let's first delve into a real estate agent's work.
What does a real estate agent do to facilitate a sale?
According to data from a survey conducted by the National Association of Realtors, more than 90% of home sellers choose to work with an agent. And for good reason. The same survey also showed that agent-assisted home sales typically net an average of $59000 more than an FSBO (For sale by owner) home.
Real estate agents put in a lot of effort behind the scenes to ensure the needs of the homeowner as well as the buyer are met.
The listing agent, representing the homeowner, puts in a lot of time and effort to set up the home for sale. They provide a ton of services including pricing the home perfectly, marketing it across multiple channels, finding the ideal buyer, negotiating great deals, and dealing with all the paperwork up until the deal is closed.
Along a similar track, the buyer's agent also fulfills a host of roles. They're responsible for finding the ideal property according to the budget and needs of the buyer. They take into account a lot of recent real estate deal data to pick out the best property choices. Moreover, they help negotiate deal sizes and other benefits such as home improvements and other incentives.
Your agent plays a critical role in facilitating a property sale. Their compensation plans account for these contributions.
How do real estate agents get paid?
This is where it gets confusing. While commission rates are usually negotiable, most agents earn anywhere between 4%-8% of the final sale price. The sale price is calculated using a set formula that factors in the square footage, price per square foot, and added costs for other facilities. The final commission is a pre-fixed percentage of this price.
While this sounds simple, it's nowhere near that. Once the final commission amount is calculated, it is then divided among all the brokerages and agents involved in the sale. Most of the time, the commission is split evenly between the parties.
Other times, the split may be uneven, depending on the negotiated rate. The seller's agent might take a higher cut than the buyers. There's also another scenario, where the listing agent gets a marginal cut if the sale was made without much help from them.
Lastly, if the agents are not independent contractors and work for a brokerage, then their commission process is entirely different. First, the brokerage takes the commission cut and then distributes it amongst its agents based on a pre-decided split. New agents might get paid a lesser percentage while senior agents get a bigger piece of the cake. Larger deal sizes also warrant bigger commission rates.
How to simplify the process of commission management for the real estate industry?
As evidenced by the previous paragraph, the process of accurately calculating compensation can be very tricky. Agents rarely get to see and understand the back-end work behind their commissions. With no transparency, there is always a degree of mistrust and frustration present on both sides. While the brokerage fumble with multiple spreadsheets to ensure fair compensation, the agents feel underpaid for the work they put in.
This is where modern and flexible commission management & tracking software comes in. It helps eliminate manual tasks and automate and manage multiple commission structures setting up payments for your agents at specific points of the sales process.
For the real estate industry, Blitz provides invaluable visibility into the entire process for every salesperson even with split commissions and makes it easy to track them from one single platform.