Real estate agents follow two basic sets of rules:
^ The body that governs real estate in your state, which is usually called The Real Estate Agency, establishes one set of rules. This group sets laws regarding how to handle the earnest money you collect from a purchaser, the deadlines for the paperwork that is involved with each transaction, who is to receive original copies, and what timeline the legal aspects of the transaction are to follow. The focus of The Real Estate Agency is centered on consumer protection.
^ The second set of rules that most agents follow is the code of ethics established by the NAR. The code of ethics dictates how agents with NAR member companies should conduct business and how they should deal with prospects, clients, and other agents. Obtain a copy of the code of ethics from your broker, your local real estate board, or online at www.realtor.com.
However, there are also rules of individual agencies. The following sections fill you in.
The rules of the house
Most company rules are based on the absolutes presented by state laws and the NAR code of ethics, but some rules will vary from office to office.
To protect themselves, some companies shorten the legally dictated time frames to ensure that agents turn paperwork into brokers with time to spare. Once paperwork is submitted to the principal broker, it gets stamped with a date that provides evidence of receipt. The Real Estate Agency can audit a real estate company's files at any time and, if paperwork doesn't conform to regulations, they can levy fines or, worse, close the firm down until lapses are corrected.
When you're interviewing with a company, request a copy of their set of rules, their operational/procedural manual, or their new agent handbook to find out how they expect you to work. If they can't produce one, read the lack of response as a clue about the organizational level of the company.
A penny for you, a penny for me: Commission split arrangements
Media reports advise consumers that seller/agent commission splits are negotiable. Likewise, buyer/agent commission splits are negotiable as well. You're the one that determines your fees. Some agents charge more because they're worth more.
New agents all seek a universal formula for commission splits, but none exists. Each broker establishes a unique formula, usually beginning with a split that apportions 50 percent of the commission to you and 50 percent to your broker, moving gradually upward in your favor over time as you achieve different earning levels.
The following list presents some of the most common commission options you may see in the industry:
1 The graduated split: The graduated split is the most common compensation package. You start at a 50/50 split, which is increased to 60/40 and upward incrementally as you become more productive and your earnings reach company-established levels for graduation.
i The graduated split capped: Some companies put an annual cap on the revenue the company derives from the graduated split arrangement. Once they collect the established amount of company commission income, the rest is yours.
i The graduated split rollback: Under this increasingly popular compensation arrangement, which is structured primarily for the benefit of the company, you receive a graduated split, but at the end of each year you roll back to 50/50 or some other established allocation. With this type of rollback, the company has a better chance of making decent earnings from all earnings. Too often, company expenses and profits are covered by too small of a group of agents. By rolling splits back at the beginning of each year, companies ensure that their costs are covered by commission revenue received early in the year. It also motivates agents to increase productivity over the early months to increase their splits over the rest of the year.
1 100 percent commission: Colloquially, this is known as the rent-a-desk arrangement. Agents on 100 percent commission pay a flat amount monthly to rent space and a few services from the company. From there, they cover all their own costs and retain 100 percent of all the commissions they generate.
You need to be well established and pretty darned successful to do well under this system, and for that reason I don't recommend it for new agents. The risk is too great for beginners, due to their lack of experience in creating leads and opportunities for income.
Brokerage fees: Don't bite the hand that feeds you
After compensation arrangements are in place, most brokers add fees to help cover their expenses. Among the most common fees to expect are transaction fees, fees to cover errors and omissions insurance costs, and franchise fees.
i Transaction fees: Many brokers charge agents a per transaction fee of somewhere between $75 and $400 to cover the cost of processing the paperwork that accompanies a real estate sale.
I started charging my clients a transaction fee of $150 in 1993. At that time, I was among the first in the country to do so, joined only by a few other high-producing agents. Over the years, I raised the amount to $495. Today, it's the real estate companies who are charging the transaction fees to the agents. However, with a little advance planning and sales tact you can pass the transaction fees along to your clients.
The first step in being able to charge a transaction fee is believing you're worth the additional money. You can't charge the fee if you don't believe in your extra value because you won't be able to defend why you're worth more.
Everyone is quick to point out that real estate commissions are negotiable. If that's the case, why not charge more? If your service is better, your skills are better, and the outcome for you're your clients is achieved with less risk, you're worth more money.
To show my value, I explain to clients that when I first started real estate sales, agents had three-page agreements, whereas now they have eight-page agreements. I also note that agents now have three inspections while before only one inspection was performed. More processing is involved in transactions than ever before.
^ Errors and omissions (E&O) insurance fees: Many brokers charge an E&O insurance fee on a per deal basis, which often adds $75 to $150 to each transaction to cover premium costs. E&O insurance protects professionals should they make a mistake in service or representation. In such an event, the insurance company covers legal fees and settlement costs.
^ Franchise fees: If you join a real estate franchise, expect to pay approximately 6 percent of your gross revenue every time you complete a transaction. The percentage is established by the franchise contract. It doesn't graduate or fluctuate based on your productivity.
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