This won't be popular, but it has to be said. Probably the most overpaid 'profession' out there. Nobody really needs a realtor, just a lawn sign and notary will do. Its not like you need a university degree set up a showing and tell me that its a granite counter top. No wonder why there are so many out there. Little work = big payday. Most showings I know more about the property than the realtor. Thank goodness there is a website to tell me how they help: http://www.howrealtorshelp.ca/

In my area, most transactions (a little over 98 percent) are completed with 2 representatives, one representing the Seller and one representing the Buyer. The average commission for one end of the deal is 2.5%.

Here are the facts of the business; The brokerage takes a well deserved portion of each commission; I take the rest to pay the following. (This is the same calculation regardless if the items are incorporated into the office fees, and regardless of your split arrangement, the brokerage has to recoup expenses somehow or it goes belly up) This is by no means a complete list but I budget and pay for the following...Car(including fuel, repairs, finance, cleaning, insurance, etc..), cell phone, computers and software, advertising, desk fees, office supplies, promotional items, local board fees, registrar fees, affiliation dues, website, referral fees, client gifts, business meals, professional apparel, office equipment and furniture, photography, field supplies, continuing education (most are mandatory), parking, internet services, and taxes, ( oh! did I mention I have to pay taxes... I pay taxes)

so after all the expenses, how much is really left to divide into the hours that were put into making it happen??? Realtors for the most part are average people who specialize in marketing Real-Estate properties, negotiating, and protecting their clients from the people who come to purchase their property, and the amount that is paid out to compensate for the time and effort put into it is within reasonable boundaries.

Michael. I was thinking the same thing when my dentist pulled my tooth last month and hit me with a $600 bill for 4 minutes of work that an 8 year old with a strong wrist could have done. Or when my mechanic charges me $95/ hr to do oil changes and filters. How about when we go to a lawyers office and sign 2 pieces of paper and get billed $1200. I mean, who needs any professional? Or could there be more to these professions than the consumer sees? The reality is, you're right. You technically can put a sign on your front lawn and sell a house without a realtor. But, history has proven that for sale by owner methods are an unsuccessfully way of marketing and take up a sliver of the market. The founder of for-sale-by-owner, recently decided to list his own property with a reputable realtor. That says something to me.

You should really read this article Brandon. Actually, everyone should. "In some cases, it can take less than two weeks to get a real-estate agent license." 5 reasons you don't need an agent: http://realestate.msn.com/article.aspx?cp-documentid=13108489

I agree Brandon! 

@michael B Do I think Realtors are paid too much? Some sure are!!!! Others actually earn their keep and add valuable knowledge and value to a real estate transaction. FYI Michael I think that HowRealtorsHelp.ca isn't great and really sours things for me. I really wish it didn't exist actually.

Unfortunately, like Michael and @Brandon Cherrington mentioned it is far to easy for individuals with a low-level of education to get a real estate license. I'd like to see a minimum educational requirement for people looking to get a real estate license in Canada. At a minimum someone should have to take a one year (full-time) college certificate in Business management/marketing. AS A MINIMUM!

Let's tear some things apart here from the articles that @michael B and @Brandon Cherringtonlinked to:

1. "Agents aren't Appraisers or Lawyers" - Realtors are neither of these things and should never claim to be OR play that role in a real estate transaction. No matter how you sell your house you will require a lawyer to be involved at some point. An appraiser may not be necessary, but in some cases it may be prudent and wise to use their services.

2. Brandon - So what that this FSBO site founder had to sell his house in the "traditional" manner. This actually doesn't shock me. Those who can afford a $2.15 million flat obviously have better things to do than browse FSBO sites in search of a home. They make too much per hour to waste time looking for their home, hence why they would enlist the help of a real estate professional to narrow down the options and get PERSONALIZED recommendations.

3.You can do what an agent can: True. People can stick a sign in the lawn, open the doors to their home on Saturday, and put up info on Facebook/Twitter/Youtube/Website.

Will they get the same exposure? No. Great Realtors (see how I didn't say experienced, some experience Realtors have lost touch and aren't on top of the game anymore) have connections, exposure and traction that would be very hard for an individual selling their home to gain in a short period of time. Realtors also network with other Realtors who may know someone who is looking for property just like yours.

Also "time is money" and everyone has a per hour figure that their time is worth. Let's take the average Canadians salary of $46,000/year, divide that by a 40 hour work week and multiply that by 50 weeks (two weeks vacation). So $46,000/2,000 hours = $23/hour. So how long does it take to market a property, hold an open house, call prospective buyers, and everything else? That varies, though let's say your house is on the market for 36 days (average DOM for 2012) and spend 2 hours a day (on average) of your time selling your home. That would mean you have spent 72 hours selling your home. that time would equate to the equivalent of $1,656 (or 3.6% of your annual salary and time) selling your home. This doesn't include legal fees and closing costs. Yes, these hours may be outside of your usual working hours, but that time you've spent is the opportunity cost of your undertaking a FSBO property sale. Now if your house sells, fantastics the free market has worked in your favour! But, oops let's say your house didn't sell. You now have to use a Realtor. On top of the time/hours you spent marketing and attempting to sell your property you still have to pay a Realtor, pay more legal fees, etc. to sell your home.

Now to answer the original question (sorry for the mini rant above):

Do Realtors make too much?

Let's look at the numbers for the GTA and TREB. This data is all pulled from research done by @mark mcleanof Realty Lab (http://realtylaboratory.com/2012/03/07/agent-statistics-the-top-1-of-toronto-real-estate-board/).

Let's look at the numbers:

- The top 1% of TREB represent only 360 Realtors.

-18.6% of TREB members didn't sell a single property in the year that the stats were drawn from.

- 71.2% of TREB Realtors did 6 deals or less. Those TREB Realtors made between $0 (maybe lost money) to $75,000 on an average home price of $500K. This is before brokerage split and expenses.

- 0.02% (yes POINT ZERO TWO PERCENT) of TREB Realtors did over 201 deals. That would equal an income of $2,512,000 on an average home of $500K. This is before brokerage split and expenses (which I'm sure they would have many!)

- 160 TREB Realtors ( or 0.45%) did 50-100 deals. that would equate to earnings of between $625,000 to $1,250,000 on an average home price of $500K. this again is before brokerage split and expenses.

- 16% of TREB Realtors (5300 Realtors) did 7-12 deals. That would equal earnings of $87,500 to $150,000. This again is before brokerage split and expenses.

So yes some TREB Realtors are doing alright.... or really GOOD! The reality remains though that most aren't rolling in cash.

People pay insurance brokers, bankers, investment advisors, personal coaches, personal trainers, mechanics and many other people to provide them with personalized advice and expertise. All these professions are filled with amazing people and people who you would push of a cliff after dealing with them.

Whether you believe using the services of a Realtor are worth it and whether they earn what they make, I'll let the numbers do the speaking... In reality a large portion of Realtors are making close to the average earner in Canada.

Sorry for the essay, spelling mistakes, or errors..... It's Saturday morning and I've only had a 1/2 cup of coffee ;)

@Alexander Kvitnitsky Is the brokerages portion of the commission actually well-deserved? There are several "bloated" brokerages with very high overheads that could trim some serious fat and still remain in business, profitable, and actually help/training and support their agents better. 

Thoughts?

I often wonder the same thing Alexander. As for education, I'm going to drift from the crowd here and say that getting a 1 year cert. in business isn't really going to make a difference. There are actually a high number of agents out there with university degrees and I don't feel as though they are the "better" agents. I know of quite a few actually. There is nothing on this planet that is quite like Real Estate and I think if there is going to be anything it should be more specific real estate training and education. Perhaps a 2 year diploma specifically designed towards real estate and then you can apply for a Real estate license after more addition training and education

@Brandon Cherrington I'll assume your reply is to me, as it doesn't make much sense in reference to Alexander's comment.

I totally agree with you. Something like 67% of people in the real estate sales profession have a diploma or degree. As the data i posted above shows, we can obviously see that doesn't mean that they will be the best. Though I do think some further education is a requirement to survive in the industry. I don't think 1 year is enough either, but it is a step in the right direction and would be an improvement over the high school equivalency (or 50 multiple choice question "equivalency" that you can take through OREA). I'd posted somewhere else (maybe not on @BuzzBuzzHome) but 2-years should be the minimum. The issue is that Canada is far behind in the real estate education department. Right now there are only 2 undergrad commerce programs that have a major in real estate. Ted Rogers school of Management is starting a program in Sept. and that will be the third.

In comparison every state has multiple colleges offering undergrad degrees in real estate. I'm glad this change is taking place because the industry is desperate for more knowledgable individuals right out of school (not speciifcally sales, but the real estate industry as a whole). That being said I don't think it is necessary for everyone to do a 4 year undergrad focussed on real estate. A two year diploma in business management provides practical information in marketing, law, ethics (crucial), accounting, and finance. This should give people the skills to join a team or brokerage and be alright if they know that there will be lots more to learn. You wouldn't want to go beyond 2 years because being a Realtor is really sales+ and isn't rocket science and some things can only be learnt on the job and by real life practice.

I agree just because someone has the paper doesn't mean they have the skill. A university degree in fine art, English, or premedival history doesn't provide educational skills that transfer to real estate. That being said, education isn't everything. Someone still has to have the motivation, personal skills and personality traits to succeed in business and real estate. Some of the most book smart people I know would get eaten alive in a business sales/management setting.

Some good points Jamie. The consumer has a lot of options now a days. Everything from For Sale By Owner to a full service brokerage and everything in between. Buyer's Agents services are almost always free to a buyer and a Seller can back out of most listing agreements, free of charge, if they are unsatisfied and re-list with someone else... The important thing is for a potential buyer/seller to do their due diligence and seek out the right fit for what they are looking for...

@Jaime K I do agree with the fact that some brokerages have a lot of meat to trim, but normally those brokerages carry a big name that they use as a leverage to hike up the prices, nice presentable offices for walk ins, and great support staff. 

The perception that a prospect holds dealing with an agent from a big name company is that the agent is just as successful, professional, and overall good when it comes to anything Real Estate related, as the company under which he works. 

As they say... "fake it until you make it" for those who are new to the industry.

Do realtors make too much? I have an answer for that www.bidcomhomes.com

Thank you Giorgio. Another example of the MANY options the public has when choosing a Realtor.... 

Www.bidcomhomes.com has helped many agents list multiple properties for less than $100 in total  bids, the business model helps both parties, not only the seller, thanks!

Oh of course. My whole point to this post is that the Real Estate Agent industry is very competitive and we live in a time and era where the public has way way more options than ever before. Thanks partly to the internet. Long are the days of riding in the back seat with a Real Estate listing book that wasn't yours to take... we've come a long ways and as a Realtor, I embrace it.

While taken a bit out of context .... this recent brochure that came through my mailbox may be reason why the public perception is that some realtors are in fact overpaid. Here the realtors sold two properties worth $10,078,000 over a combined four days! Commission@ 3% = $302,340

Sure they likely put in more than four actual days, but .... I don't think these type of public  "declarations" by realtors themselves really help the realtor cause too much?

Gord, just to point out Vancouver agents don't usually make 3%. Is that a common commission in Toronto?

Based on "commom" commission, assuming they didn't reduce commission and they are the listing agents with buyers agents involved in the sales too, they would have made about $127,000 on those 2 deals.

Still a great 4 days for them, but far less than half of what you posted.

Amar, What is the standard commission in Vancouver? The assumption was 7% on the first $100,000 and anywhere from 2.5 to 3.5% on the remainder ... The assumption was also that the agents were not splitting the commission but were double ending. Ballpark only as there are numerous discount brokerages out there as well! Even if the commission was shared ... not bad for four days work.

There is no standard commission, but a common commission is 7%/2.5%.
Based on that rate, with a buyers agent involved and again common offered commission there it would be about $139,000.
My $127,000 calculation was off before, sorry Friday night beer calculations.

But yeah, I see where you were coming from with calculating it as double enders. Double enders are a small portion of all sales, so that's pretty unlikely, but we're getting away from the point anyway.

Agreed, it's certainly a nice weeks work based on assumptions of commission rates we would expect.  

Average realtor does 4 deals a year and the average income is going down steadily each year

@Brian PersaudI know that the average number of transactional sides is around that figure, but that number does get heavily skewed by the number of part-time Realtors and those who have their licenses but don't actually practice. Almost 20% of Realtors in 2011 didn't do a single deal (sorry don't have the stats for 2012). This 20% is a huge chunk of the workforce and definitely impacts that average transactional sides and earnings.

Off the top of my head I can't think of another profession that would have 20% of the workforce completing no business transactions and earning $0. The question could be asked, would those individuals even be included in the statistic?

I think now more then ever the value of using a REALTOR® by a homeowner is equated to the cost in $ paid out as % of a homes selling price. It’s been a good and lucrative run but not a fair or easily justified compensation for work model. Homeowners see this and ask; if I sell my house for $150K (lets use 2.5% to both listing and buyers agent for sake of calculation), I pay full service REALTORS® $7500 (plus taxes) if I sell my second property for $750K I pay the same full service REALTORS® $37,500 (plus taxes) sure some goes the Brokerage and fixed advertising costs....etc but the homeowners don’t focus on that, they focus on the perceived loss of money or try to equate the $37,500 to the value provided by the REALTOR®.

This basic “value” calculation is quickly and easily pointed out by an owner with multiple properties, or when they are selling a 2nd or 3rd time around, or when neighbours and or friends and family sell at the same time or in the same area. So the difference in the costs of using the same full service REALTOR® (give or take some extra challenges per property) is pretty hard to justify at $7500 vs. $37,500.

So lets argue there is inherent value in bringing a seller to the table in the first place, right? Maybe that’s worth $10K in the right situation, like if the property is hard to sell or I’m desperate to move quickly, or want a managed bidding war, it’s the price I pay for access to buyers and results. The problem with this part is, choice, the inherent value in bringing a seller to the table is paid every time but is always different amounts no matter how difficult or easy the sale is.

This lack of consumer choice and not being able to easily justify REALTORS® value for work done are the two biggest obstacles to the future of REALTORS® representing a home sale

Just found this neat infographic from the US. Does this hold true in Canada?

Not sure... some active Canadian agents could speak to this breakdown but if the house was 900K and took the same 38 hours to sell = net agent commission approx. $235/hr. and that's certainly more in their pocket.

@Admin, is there higher marketing fees associated with more expensive houses?

@Matthew Slutsky @Admin That paints an easy picture to understand, but it does not show the full depth of work that a realtor does, such as negotiations, price setting.

Again you'll need an active agent to answer that directly and there's probably many answers. I think there's more willingness to reach further, faster with more $ on more expensive houses... but I think marketing $ spent would likely be reflective of market conditions, the neighbourhood, the Brokerages marketing efforts, use and knowledge of social media, website SEO, amount of staging needed, number of buyers in waiting... etc these would all account for more of the reasons behind the marketing expenditure and not necessarily the asking price of the home.

@Marco DiFotiI think an infographic has a hard time explaining the nitty-gritty of any job. An infographic could be used to explain brain surgery, but it wouldn't be a complete guide on how the whole procedure needs to be completed.

@Admin I do think that as the price of the home increases so does the marketing budget. Print advertising like the Real Eatate Book costs more in high-demand and expensive neighbourhoods. Your buyer pool also becomes more unique and targeted, the pricier the property gets, so this all changes how and where you market a property. 

@Matthew Slutsky @Marco DiFoti Thoughts on whether agents could be paid by the hour instead of commission (maybe $95/hr) and/or is 38 hours a fair assessment of 'man hours' needed to sell a home? Argument against is that it's likely different for every home and some will be harder then others and some don't sell period.

@Admin ...if paid by the hour, would the owner have to put up all the marketing costs and other costs up front?

Personally, I do not have an issue with paying a percentage.

Hypothetically it would depend on the hourly rate. But the point was really just referring back to your info graphic that breaks it out to be only $29/hr for 38 hours (not including marketing costs) and that not being much $ for an agent to make in the end. But if it was $235/hr for 38 hours (not including marketing costs) as in a 900K home's breakdown, some might say that's not bad... however it's clear they can't be paid by-the-hour anyway. Interesting stuff... real estate industry actuarialist must have already crunched this out there somewhere :-)

I don't think realtors make enough. They work commission based. Imagine all the houses they don't close on.

I believe you're right @Stephen Marlow however there are a select few realtors who don't do a great job yet cash in. Thus, making it look bad for the rest.

@Aaron Mohammed Definitely true. In the end, every industry that has a stereo type is probably due to this. Think of racial profiling.. same thing.

Generally speaking I feel like in any field there are people who exploit their job but I think wages and salaries are generally fair.. Except for teachers maybe. In an interview yesterday with Obama he was saying how they don't make enough money.

Are real estate agents ripping you off?
High fees. Hidden data. It’s the realtor racket.

http://www2.macleans.ca/2010/04/01/the-realtor-racket/

“Honest to God, I think a used car salesman works harder at selling a car and earns a fifth of what these people make.” Former real estate agent

I personally think that it is unfair to say that REALTORs make too much money. It is an industry with very low barriers to entry, so if this is something you believe you are more than welcome to pursue this as a career for yourself. 

I also think that a hierarchy of services does already exist, and this is reflected in the various 'kickbacks' buyers receive from their REALTORs.

Frankly, I don't think anyone would even have an issue with this if commissions were reasonable. Here more than 10% to sell my house is going to cost me at least $30,000. That's almost six months income for me. Can you really tell me, with a straight face, that you are worth six months of my income? Seriously?

@SCOTT -where do you live? Where are you getting 10% from?

the average commission rate is about 4.5-5% in most of Canada (it's also always negotiable, there is no set commission structure or rate) and the only variation that I know of is British Columbia, Canada. They are typically structured as 7% on the 1st $100,000 of a homes selling price and 2.5% on the homes selling price above $100,000. That commission is also split between the two sides (buyers agent and sellers agent) and than further divided between the brokerage and the salesperson. On a $30,000 commission the salesperson may only get $7500. That's also before paying for out of pocket advertising expenses and paying taxes. So the salesperson may only "take home" $2500-3500. 

you also have two ways to remunerate an agent A) a percentage of the sale price OR b) a fixed amount for their services. The choice is yours. 

I would agree that a 10% commission rate on the sale of residential property is way too high, if we are talking about the Canadian marketplace.

if you have any other questions about salesperson remuneration (payment) I'm happy to answer.