Who's making the cake?

There's something like 1300ish REALTORS® in Victoria. Less than 1% of them are advertising "commission sharing" online, some are offering other discounts to get clients, and then there's a bunch of 'em (who make up a small percentage of the total) who wake up in the morning and climb out from under their cash-stuffed silk duvets.

In 2010, not a great year but not a bad one either in the big scheme of sales volume, $2,794,122,181 worth of real estate changed hands in the VREB MLS®. It's not easy to calculate total sales commissions on this number because we don't know the commission structures of each deal and we do know they would not have been uniform. I've seen 5% as average commission on individual deals before, but it's not accurate, for example:

Average home price: $600,000
Commission: $6,000 + $15,000 = $21,000 (6% on first $100K + 3% on >$100K)
5% = $30,000

So we won't assume that 5% of the two billion seven hundred ninety four million one hundred twenty two thousand one hundred and eighty one dollars went to REALTORS®.

I'm in a giving mood. Let's be generous to the industry today and guesstimate that the total commissions collected added up to just 2.5% of total sales volume (I wouldn't be surprised if it was closer to 3% in fact). That means there was very likely $83,823,665.43 in commissions for the region's 1300 collectors to divvy up for an average $64,479.74 pre-tax, pre-expenses income. The industry is an expensive one to participate in: you've got heavy desk fees at the big-boy brokerages, Lexus leases, Gucci watches, Armani suits, Jimmy Choo shoes and Luis Vuitton leather listing binders to pay for if you want to project success. I'd be surprised if the average REALTOR® didn't spend half that $65,000ish on expenses related to securing their real estate riches dreams.

Makes you wonder why anyone would spend the $10,000+ to study up, buy insurance and have a 6-month expenses float to break into the business doesn't it? (Probably why a great many would-be agent goes into it part-time).

Real estate trading services is, despite the fact the industry has been colluding on commissions charging what the market will bear, a very competitive business. It's a dog eat dog world out there and we all know there's some big dogs in this little town. The VREB showers recognition on the big dogs each year and sales managers in the brokerages try to motivate as many of their little dogs into the big dog pit as possible.

You've seen the recognition program, the MLS® Gold, Silver and Bronze Awards, I'm sure. Every agent ever to win one is sure to plaster it across their cross-armed-leaning-up-against-the-wall-coolly, hipster vinyl photo on the back of the #14 bus to remind you they're far superior to their peers--"Use me, more people do!"

So what are the thresholds? Well, they change from year to year. It's not about hitting a firm dollar target, it's about measuring sales volumes against the performance of the group. They do it in percentage brackets. Magically, the 2010 brackets appear for us here:

Final Gold Threshold: $6,075,500 (top 10%)
Final Silver Threshold: $4,079,500 (top 20%)
Final Bronze Threshold: $2,827,625 (top 30%)

What do these numbers mean in terms of commissions collected? Again, it's tough to say with absolute certainty, but here's the best guess:

Gold: $200,000 +
Silver: $140,000 +
Bronze: $100,000 +

These numbers were calculated assuming standard commission rates of 6% on first $100,000 and 3% on > $100,000. The majority of the deals aren't double ended, and sales revenue is credited based on commission-able earnings meaning if the average home sells for $600,000 generating $21,000 in commission split equally ($10,500) then each REALTOR® is credited with $300,000 in sales revenue towards the MLS® Awards.

A REALTOR® has to get in on about 9.5 average-priced SFH deals per year to be a bronze winner. I'm going to stop there because the deals done are too diverse to make an even remotely accurate average assessment of deal volume. But I'll leave you with this thought: It's highly likely the taxable income of a bronze winner is somewhere between 60% and 70% of the estimated commissions collected. This means that its likely the top 30% of Victoria's REALTORS® get in on enough deals to earn what I calculated as the "average" above.

There's an old adage in the sales world: 20% of the players take home 80% of the cake. It appears this may be true in the local real estate market.