September 4, 2019
On the first day in our South Jersey real estate school, our instructors ask students, “Why do you want a New Jersey real estate license?” Then they ask, “What are your impressions of having a real estate career?”
The answers can be . . . hmmm . . . quite amusing.
Then again, after thinking back to some of the comments clients have made since I began my own real estate career 31 years ago, I realized that these myths are quite commonly shared by the public.
Myth # 1: “You’re getting six percent from me!”
Time and again, clients have made comments inferring that we as their agents are earning six percent commission (or whatever number the listing broker charged the seller). I have heard comments such as, “You owe me big time. You sold my house and are walking away with $25,000!”
The public doesn’t realize that the commission paid by the seller is divided four ways: to the seller’s agent, the seller’s brokerage firm, the buyer’s agent and the buyer’s brokerage firm. If the agent is on a team, there’s an additional split of the commission before the actual agent gets paid!
Myth # 2: “You guys all charge the standard six percent, don’t you?”
Absolutely not! There is no “standard.” All commissions are negotiable. Real estate licensees are expressly forbidden from discussing in any manner what commissions they charge when they are in the company of other Realtors®. Even when we teach aspiring but unlicensed agents in our real estate school, we use generic terms like, “And this is the space on the listing agreement where you would fill in the commission as X percent.”
When we as buyers’ agents see that our side of the commission is 3%, we have no idea what the listing agent has charged the seller for the listing-side commission. I have seen commissions as low as 1% and as high as 13%, depending on whether it was a multi-million-dollar transaction or a weekly rental at the shore.
Myth # 3: “Your company pays your expenses.”
If only! With only the rarest of exceptions, real estate agents are independent contractors. Not only do they have to pay for all their own marketing expenses, they must also bear the cost of Realtor® association dues, MLS access dues, Errors & Omissions insurance, and all the costs of their vehicles, cell phones, websites, and printing. A single order of Open House and For Sale signs can easily cost an agent $1,000. And as independent contractors, Realtors® must pay all their own taxes, health insurance, and are prohibited by the IRS from such company-paid benefits as vacation or sick time and retirement plan contributions.
Myth # 4: “The agent with signs all over town is the one I should use.”
Why? It is possible that the “top dog” has such a powerful marketing presence and customer base that he or she can deliver the results you want. But maybe his signs are all over town because he gained listings by offering inflated listing prices and now cannot sell any of them. You also could risk being just one of many clients who get lost in that agent’s client base, whereas by listing with a new agent, they would devote their entire time on selling your home and delivering superb service to you because you are their only listing.
Myth # 5: “Realtors® earn big salaries.”
As noted before, a small number of obscure brokerage firms offer small salaries paired with reduced commissions or bonuses. But the vast majority of real estate agents work strictly on commission. The commission is only paid after a transaction settles, so a fairly large percentage of transactions fall apart because of inspection issues, mortgage qualification or appraisal problems, attorney disapproval or buyer/seller remorse. It is not unusual for the Realtor® to have spent hundreds of hours on that sale only to have the entire transaction blow up—in which case they do not receive a cent for their time and expense expended.
Myth # 6: “I watch HGTV and you folks make really easy money.”
Am I allowed to throw up now? When people join our real estate licensing class and tell me how they love watching reality television shows about real estate, I cringe. No, we do not show three perfectly staged homes and then 22 minutes later get an offer for one of them and receive a $25,000 commission as the final credits roll by.
What we do do is give up the tickets to the Eagles-Cowboys game that we just got offered because we’ve committed to our client to hold an open house. The one that nobody came to visit. Or we endure a seller yelling at us for not taking their side when we pass on feedback from showing agents who commented on how strong the cat urine odor was in their living room. Or we drive buyers around looking at homes for three straight weekends and then find out they bought a house through their sister-in-law who was too busy to show them around herself. “But we really appreciate your time.”
Myth # 7: “Don’t Realtors® just work weekends?”
Not true. But successful Realtors® do only work on days that end with a “y”
Myth # 8: “Real estate agents get kickbacks from mortgage companies.”
Absolutely not true. It is both a state and Federal crime for real estate agents to take kickbacks from any provider of services to their real estate clients. Regulations called RESPA disclosures mandate that any licensee in the real estate transaction must disclose in writing to the client any financial benefit they receive from such a service provider. For example, If John Smith, owner of Smith Realtors® also owns Smith Mortgage Company, every buyer and seller of any Smith Realtors® agent must be given a written RESPA disclosure stating that they are free to choose any mortgage company they wish, but if they do decide to finance their property through Smith Mortgage, then John Smith will benefit financially.
Myth # 9: “A real estate must show me houses.”
Not true. There are many reasons a real estate agent can refuse to accept a client. Obviously those reasons do NOT include a refusal based on race, creed, religion or any of the other protected classes. Along with many of my peers, I have fired clients for using offensive language, for asserting that I must not reveal fire damage to her roof trusses, and have refused to accept listings from sellers who wanted me to list their homes for thousands of dollars above where I ethically believed they should be priced. I know other agents who felt “creeped out” by buyers and refused to go into vacant homes with them. As real estate professional may choose whomever they want to represent.
Myth # 10: “You get a better deal if you buy through the listing agent.”
Many people believe that they either must go through the listing agent to buy a home, or that they will get a better price if they do so. Neither is necessarily true. State law says that it is in the seller’s best interest for the listing broker to cooperate with other brokers, so unless the seller’s agent has a signed “Waiver of Broker Cooperation” from the seller, the property must be listed in the MLS and can be shown by any other Realtor®.
There is also a common belief that the listing agent will cut the commission if she has both sides of the transaction, but that is not necessarily true, and even if it is, it is the seller who would benefit from a reduced commission
Now that we’ve taken care of the myths, if YOU are considering a real estate career, I can personally attest to what a wonderful occupation it can be. The joy you will feel of seeing first-time home buyers get the keys at settlement, or the multiple “We could never have done this without you” comments from grateful sellers will stay in your memory long after you forgot how much commission you made. Come join us at Garden State Real Estate Academy and let New Jersey’s top-ranked real estate school help you get your license soon!
David C. Forward is a licensed real estate broker and instructor and was first licensed as a Realtor® 31 years ago. During his career, David and his business partner sold more than 450 homes in South Jersey. He is now School Director of Garden Real Estate Academy, has won numerous awards for real estate sales, is a much-requested public speaker who has addressed audiences on six continents and is the author of 14 books. You can reach David at David@GSREacademy.com