The Rationale for a Realtor's Commission

While the high price of the home might make a Realtor's commission seem large, when broken down per hour worked, I believe a 6% commission fee provides a reasonable return for the realtor's services.

Let's break down the rationale for a 6% commission on a $150,000 home sale:

1.      Realtor Costs:

• Realtors incur costs such as marketing, advertising, photography, and administrative expenses to promote and sell the property.

2.      3% to Buyer's Agent:

• A 6% commission is typically split, with 3% going to the buyer's agent. This incentivizes other agents to show and sell the property.

3.      Broker's Share:

• Realtors often work under a brokerage, and a portion of their commission goes to the broker. Assuming a 30% share, the listing agent effectively receives 70% of the 3%, or 2.1% of the total home sale price.

4.      Transaction Duration:

• A typical real estate transaction takes about 4 weeks. Realtors invest time in coordinating showings, negotiating deals, and ensuring a smooth closing processs.

5.      Comparison to Other Industries:

• Tipping a waiter at a restaurant is often 15% of the bill.

• For a $50 meal, a 15% tip would be $7.50

• A 15% tip on a $150,000 meal would be $22,500!

Now, let's calculate the earnings for the listing agent based on a $150,000 home sale:

Total Commission:

6% of $150,000 = $9,000

Broker's Share:

30% of 3% = 0.9%

Listing agent's share after the broker's cut = 2.1%

Listing Agent's Earnings:

2.1% of $150,000 = $3,150

Now, consider this over a 40-hour work week for four weeks:

Total Hours:

40 hours/week * 4 weeks = 160 hours

Earnings per Hour:

$3,150 / 160 hours = $19.69/hour

When considering the costs, the split with the buyer's agent, and the broker's share, the 6% commission is a fair compensation for the realtor's time, effort, and expertise.