1% is the new 3% when it comes to real estate agents’ take-home pay, and I can prove it.
The traditional real estate commissions
So quick math for those who aren’t completely engrossed in real estate commissions. For time immeasurable, or about 140 years give or take, agents have charged 6% to market properties.
That 6% is actually two separate commissions. There is a 3% commission for the listing agent and a 3% commission for the buyer’s agent.
Now that that is understood, let’s be plain: 3% is the new 6%.
Agents have been charging 6% for over 100 years. But just in the past 10 years since I have been in the business, the agent take-home has radically changed.
The reduction of overhead
For starters, virtual brokerages have arrived letting agents keep 100% of their money minus a small fee.
When I got into the industry a 50/50 broker-to-agent split was common. Brokerages didn’t have all the modern technologies. They had not yet gone virtual.
Those brokers had tons of overhead and expenses on their physical office locations and the staff to keep them running.
The breakdown of the commission split
In 2011 when I entered the business, the average home price was $224,000 and I was charging 3% listing fees and on a 50/50 broker split. My actual take-home, after all was said and done, was $3,360 as a listing agent (before marketing expenses of course).
Today the average price of a home is roughly $389,000. That same agent selling the same average property in 2021 and belonging to one of the modern “100%” split brokerages is taking $11,270. When we sell a home at a 1% fee with even an 85/15 agent to broker split my actual take-home commission is $3,306.50.
This is just talking about the listing side, the buyer making 2% with these new modern splits and huge home values is drastically surpassing the 2011 agent as well.
What it all means
Let’s just let that percolate and marinade for just a bit.
Since 2011, so much has changed to make the agent’s life much easier. Old, antiquated marketing strategies are going by the wayside meaning the agent is spending much less on marketing their listings.
Agents are now spending less and less time and effort on the actual marketing of their listings because the internet does most of the selling for them.
Instead, the agent is spending all of this newfound revenue on lead generation, or on themselves. So, is it any wonder that since 2011 we have gone from just over 1 million to 1.46 million real estate agents in 2021?
Is it worth it?
So hopefully this puts some things into perspective.
I have many agents asking me if we even make money listing homes for 1%. Well yeah, we do very well thank you very much.
My average agent does listings at 1% but generates a lot of buyers organically at 2.5% or more. All things considered, my average agent is making closer to 1.7% per deal due to the higher commission rate paid on buyers, and given the amazing splits that agents today enjoy and the incredibly high home values our agents do incredibly well.
The secret sauce is in the value proposition to the client. Unfortunately, the real estate industry seems obsessed with figuring out how much profit they need to offer to recruit more agents and then keeping the rest for themselves.
Our focus is instead on providing value to the client which means we might take a little less per deal, but we have an endless number of happy clients.
Finding clients to make happy is the problem we face as an industry. There are a lot more agents than there are listings currently and that trend is only getting worse.
The benefit of the 1% listing fee
I enjoy pitching savings as opposed to being one of 1.45 million other real estate agents charging the same fees for the same services and trying to convince the world I’m somehow better.
Even if it’s true the public doesn’t believe it, I would rather offer them something they believe in which is real value on their bottom line. My client savings and value-focused mindset don’t play well in that sandbox, and I wouldn’t change a thing.
Founder and CEO of 1 Percent Lists