How Do Real Estate Companies Make Money?
Real estate companies or brokerages hire real estate agents and brokers. They also organize and carry out all kinds of transactions for real estate. Most of these transactions happen under the real estate company.
Basically, a real estate company clears the way and makes it easy for the procedure of buying and selling properties. Owners of real estate companies must have a real estate broker or perhaps must employ a licensed real estate broker to manage and look after the business.
Also, depending on the state where you are, there are some requirements that need to be complied with, one of which is the length of time, the real estate company owner or manager has been licensed.
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When real estate companies employ agents, they usually set up on what is called “commission splits.” Essentially, once the real estate agent completes a property sale, the commission is split between the real estate company and the agent. The commission splits can range from fifty-fifty to as high as eighty-twenty. The splits differ from every real estate company and agent.
Sometimes, some real estate companies may have several real estate agents working under them and each may have different commission splits.
Take a look at this scenario.
Buyer A desires to purchase a property. He or she meets Real Estate agent A. Real Estate Agent A works for Real Estate Company A. Let’s say Agent A takes Buyer A to a home listing by Real Estate B who works for Real Estate Company B.
Now, Agent B is on a fifty-fifty commission split with Company B. Agent B is hired by the owners of the home that Agent A wants to show to Buyer A.
Let’s say, the home is listed at $349,000 USD. The owners of the home or the sellers have agreed to pay Company B, six percent of how much Agent B can sell the house for.
Now, Agent A and Buyer A put in an offer for the home for $325,000. That offer is accepted by Agent B’s sellers. Once the sale is made, Company B will receive six percent of that said amount.
Now, will Agent A and Company A get a commission too? How? Who’s going to give the commission to Agent A and Company A?
Agent B and Company B will pay Agent A and Company A their commission. When Agent B was hired by the homeowners/sellers, she put that home into a multiple listing service (MLS). This is a website that real estate companies and agents use to help their clientele look for properties or to buy and sell homes.
When Agent B put the home of the sellers on the multiple listing service, he offered all the other real estate companies a split of the commission that he will get from the sellers. In this case, Agent B and Company B offered Agent A and Company A fifty percent of the commission from the property sale.
So what’s the rundown here?
The property was sold at $325,000 USD. The sellers will give a six percent commission to Company B as agreed and that would be $19,500 USD. Company B agreed to pay Company A fifty percent of the commission. Agent B is on fifty-fifty split with her Company and Agent A is on a sixty-forty split with his Company.
- Total commission from the sellers: $19,500 USD
- Agent B’s Commission: $4,875 USD
- Company B’s Commission : $4,875 USD
- Company B’s Commission: $3,900 USD
There you go, a simple rundown of commissions. It’s pretty basic and it essentially shows one of the ways a real estate company makes money, among other things.
One key detail here is to make sure the agents and their companies have a black and white agreement. Also, the real estate companies must be knowledgeable of the real estate laws in their respective states. Therefore, licensed brokers are absolutely necessary.
Successful and established real estate companies usually make more than $100,000, net, every year. Of course, they need to shell out operating expenditures. Other real estate companies add property management services to their companies. This is a great source of extra revenue as it attracts more clientele from both buyers and sellers.
Real estate companies can make their business more profitable by using technology. Now most, if not all Real Estate companies, have websites. Just like any other business, they have strategies when they write their copy for advertisements. However, the advertising ball game for real estate companies is different on the world wide web.
Website visitors expect something more. So, most real estate companies make the experience for the page visitor easy — clickable, navigable, and quick information. Not to mention making the page loaded with really good photos. There’s no place for lackluster ones here.
In this day and age, people buy with their eyes on the internet.
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