While many professional service providers charge an hourly rate, most REALTORS® are paid a set commission at the close of a real estate transaction. Unfortunately, over the past few years there has been a lot of misinformation circulating in the media about the REALTOR® commission structure.
Let’s dispel some of these misconceptions by explaining how this approach is actually beneficial for consumers and small businesses.
The real estate commission structure
While some agents charge a flat fee for their services, many REALTORS® charge a commission, which is calculated as percentage of a home’s final sales price.
Because the REALTOR® commission comes out of the proceeds from the home sale, which would otherwise go to the seller, people usually say that the seller pays for both REALTORS®’ fees.
It puts homeownership within reach
In a statement made just last month, Charlie Oppler, president of the National Association of REALTORS® (NAR), said one of the biggest benefits of this structure is that it puts the dream of homeownership within reach for more Americans.
“The commission structure where the listing broker offers to share his or her commission with the buyer broker ensures greater equity and equality for first-time, low-income, and many other home buyers who otherwise couldn’t afford a home and professional representation,” he said. “If buyers had to pay an out-of-pocket commission to their agent at closing in addition to the price of the home, it would increase their costs and freeze many out of the market.”
To put this into perspective, NAR explains that the typical American household has an average of $8,863 in the bank. This is barely more than 50 percent of the median down payment on a starter home, which in 2020, was $16,100 (7 percent) for first-time homebuyers.
Since most lenders don’t allow real estate broker commissions to be financed, this means that every 1 percent of commission that first-time buyers pay out of pocket puts their home $2,300 further out of reach.
It levels the playing field
In Oppler’s statement he stresses the fact that, “there is real value in a structure that levels the playing field for buyers and pays everyday Americans for a critical service.”
A home is the largest, most complex purchase many of us will ever make and there are a lot of emotions involved in the process. Even as homebuyer internet research reached an all-time high of 97 percent last year, NAR says, “nine in 10 people still choose to work with a real estate agent to buy a home.”
“Real estate agents help people navigate complex, data-heavy, and voluminous information, details, and decisions,” said Oppler. “That includes everything from coordinating with lenders, managing attorney reviews, advising on zoning, arranging appraisals, serving as a professional negotiator in a highly competitive market, and advising on the latest trends in the local housing market. All that for a median gross income of $49,700 for REALTORS®.”
It helps small businesses
Oppler says the cooperative broker MLS system allows smaller brokerages to compete with larger ones.
“Because of MLSs, we’re at a point in the market where we’re seeing unprecedented competition among brokers, especially when it comes to service and commission options,” he explained. “That gives consumers many different choices including which customer service approach and broker and commission model they prefer.”
It benefits communities
The REATLOR® commission structure is enabled by agents who continually go above and beyond to give back to the communities in which they live and work. According to NAR, in 2020, 79% of broker-owners volunteered their time on a monthly basis and 92% made monetary donations.
“Meanwhile, 82% of REALTORS® made charitable donations, and 91% of REALTOR® associations conducted a fundraiser for their community in 2020,” said Oppler. “Over the past 18 years, the REALTORS® Relief Foundation has collected and distributed more than $32 million in relief aid for victims of more than 80 disasters in 39 states and territories, helping more than 13,000 families.”
REALTORS® in the Greater Lansing area are no exception, continually donating their time, talents, and money to give back to the local community. Whether it’s serving on the board of a local nonprofit, donating funds to a charitable organization, or pitching in to clean up a neighborhood park, our agents are fully committed to improving the Lansing area and the REALTOR® commission structure helps make it possible.
For more local real estate news and information, visit the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com.
Originally Appeared On: https://www.lansingstatejournal.com/story/marketplace/real-estate/2021/05/05/realtor-commission-benefits-many-says-nar-president/4956041001/