- The Washington Times - Friday, September 15, 2000

"Let us never negotiate out of fear," President John F. Kennedy once said, "but let us never fear to negotiate."

That is true in real estate, where the amount of the agent's commission often can serve as just one more negotiating factor in a process rife with wrangling.

Of all the ins and outs of buying or selling a house the points and percentages, assessments and guarantees one of the most confounding can be figuring out how the real estate agent gets paid.

Most agents work on commission, meaning they are remunerated for a successful deal. But who does the paying? And who really gets the proceeds?

Washington is still a seller's market, says Ricki Gerger, branch manager of Long and Foster's Friendship Heights office, but it is the seller who pays the commission. Nationally, commission rates run between 5 percent and 7 percent of the purchase price of the home. In the Washington area, the figure usually hovers somewhere around 6 percent. Nevertheless, the figure can vary according to the kinds of services provided, and the relative experience and expertise of the agent.

"All commissions are entirely negotiable," Mrs. Gerger says. "There is no set fee."

Most Realtors caution about always choosing the agent with the lowest commission, however. That can be one of the clearest examples of "you get what you pay for."

"It's important to ask a lot of questions," says Walt Molony of the National Association of Realtors (NAR). "You want to shop around for commissions just like you would shop around for anything else."

Commissions are crucial to agents who more often than not work as independent contractors. Despite the images present in television and on film, most real estate agents are not making salaries in excess of $100,000 per year. According to the most recent statistics from the National Council of Realtors, the gross median income for a typical Realtor is $43,500, and that figure is swelled by numbers from the up-and-coming Western states. In this region, the figure is far lower, with typical Realtors earning just under $38,000 a year.

While agents may represent an established company, such as Long and Foster or Weichert, real estate agents depend on commissions for their livelihood. But it is a rare agent who ends up with his entire commission.

"The structure differs from one firm to another," Mr. Molony says. "Some agents pay the company a flat fee. Others use a percentage rate, which they have negotiated beforehand."

Say the agent has just sold a $100,000 house. With a commission rate of 6 percent, that agent would be slated to receive $6,000. If the selling or listing agent works with another agent who brought in the buyer, the commission would be split between the two. Now, the listing agent has just $3,000.

It doesn't end there. Frequently, real estate agencies take their own percentage of the commission.

"Our most recent survey shows that about seven out of 10 Realtors are receiving splits," says Kevin Roth, a senior economist with the NAR. "Usually, the split works out to about 60/40, meaning that 60 percent of the commission goes to the agent and 40 percent goes to the office."

While that may seem excessive, companies supply any number of services to the agent, from office space to copying services to advertising.

"Most companies pay on a sliding scale," Mrs. Gerger says. "The more sales the agent brings in, the higher their cut. A top agent can get from 70 [percent] to 90 percent."

Then there are the agents who work on 100 percent commission basis. These may be the company's top sellers, who are responsible for bringing in a high volume of sales each year. Some real estate companies, such as Re/Max, use the 100 percent rate as an incentive to spur sales for all levels of agents, who then pay the company a monthly fee.

"It's easy to motivate agents if salaries are based completely on commission," Mr. Roth says. "This type of compensation may well be the wave of the future."

But those kinds of compensation arrangements can prove to be less attractive for low-volume and midvolume agents who end up paying for a full spectrum of services in addition to taxes.

According to one Realtor, an agent would have to make more than $100,000 in gross commissions a year to equal the $40,000 annual salary from another business with benefits.

Discount brokers, who work with little or no commission, would seem to offer the customer an alternative to the traditional real estate agent. But Mr. Molony says savings promised by discount brokers may not be worth the hassle. Although cheaper up front, use of a discount broker can mean expenditures of time and energy in the long run.

"A discount broker may put a home on the multiple listings," he says. "But the homeowner will have to do the showing himself."

For some homeowners, that means meeting and greeting literally hundreds of prospective buyers. Mrs. Gerger says 80 to 100 people can tramp through your door during an open house.

Showing your own house also means putting up with off-the-cuff comments about decorating ability, cleanliness and plans for the future.

"One seller was so insulted about what people were saying that he immediately decided to go with an agent," Mrs. Gerger recalls. "He just didn't want to have to deal with all that."

Still, the prospect of paying little or no commission can be enticing.

Today, more than ever before, discount brokers and other Internet services are promising to take the negotiations and the real estate agent's commission out of the home buying process.

In these days of on-line listings and instant loans, it can be difficult to justify paying a Realtor to do what you can do with the click of a mouse. But before you dispense with your broker, consider a few things.

First, a neighborhood broker is more likely to be familiar with your neighborhood than a dot-com.

"An agent knows the area," Mrs. Gerger says. "Plus, they know other area agents."

Second, a real estate agent can be an important buffer between buyer and seller.

"Some buyers feel uncomfortable working directly with an owner," Mrs. Gerger says. "There's always this feeling that you're not really getting all the information you need."

Third, agents earn their commissions by shepherding their clients through the onerous process of buying or selling a house.

"There are things that agents can do to protect their clients," Mrs. Gerger says. "You don't want to get to two days before settlement and suddenly find that the buyer can't get financing."

Finally, a real estate agent is an expert at negotiation. He is poised to get the highest possible price for your home. A good agent can create interest in the property, orchestrating offers and building competition. Often, that results in a higher sales price.

"What we've been seeing in this market is that sellers are able to recapture a great deal more than what they pay by using an agent," Mrs. Gerger says. "I know of instances where the seller has made $30,000 more using an agent than a neighbor with a similar property did without one."

Often, Mrs. Gerger says, some private sellers will end up paying a kind of commission anyway to the real estate agent who brings the buyer.

"The seller has already got it in his mind to pay a commission," she says. "But what they're not getting is their own representative."

Nevertheless, as more and more people become Internet savvy, the role of the real estate agent, and how he is paid, will evolve.

Already, some companies are experimenting with fee-for-service plans, where the homeowner will do some of the work traditionally accorded to a real estate agent on line. Instead of buying into the whole package, a homeowner simply buys a few parts.

Then, too, a new focus on buyers may change the way commissions, traditionally accorded to the seller, are handled.

Increasingly, a new breed of agents has emerged, those who have a fiduciary right to the buyer and not the seller. This shift in representation may ultimately affect commissions, which are traditionally paid by the seller.

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