Are Real Estate Brokers Worth Their Commissions?

State laws grant real estate brokers a limited right to practice law. The money at stake in real estate transactions, the risks taken, the responsibilities borne, the weighty ethical constraints put upon real estate practitioners  …  all mirror law practice and, arguably, make the broker worth as much as a lawyer. Let’s do a comparison.

Most personal injury lawyers work on a success basis: they get paid only if their clients receive a settlement or jury award. They call it a contingent fee. If the client gets nothing, the lawyer gets no fee. Full service real estate brokers also work on a success basis.

If a seller doesn’t sell the house, the broker gets no commission. If a buyer doesn’t buy a house, the broker gets a 0% commission despite the time and money invested. As with the personal injury lawyer, when a broker does earn a commission, it often comes weeks or months after expending time and money with no guarantee of closing the deal. Like personal injury attorneys, real estate brokers risk drilling dry wells.

So what does the personal injury lawyer charge for taking this risk? Good ones ask from 33.3% to 40% of the settlement or award. Brokers charge far less, asking for a percentage of the sales price in the single digit range for a commensurate risk.

But you say lawyers handle large deals, their cases are worth more than real estate transactions. Because of the money involved, you assume lawyers bear more tension, worry and anxiety. Let’s take a look.

A study in 2005 found the nationwide median jury award in a personal injury case to be $39,000; the average jury award for medical malpractice (the biggie in personal injury practice) a little over $800,000. In August of 2006, the median single family home price in the US was $227,500, in San Francisco $751,900.  Real estate brokers handle cases where there is usually more, not less, money at stake than in personal injury work. 

Ask any broker about the stress, uncertainties and apprehension that come with full client service in a residential sale. The real estate broker lives with a cell phone in the ear. In comparison, the personal injury lawyer seldom bears the burden of 24/7 client inquiries. It’s an exception when personal injury lawyers work evenings or week ends.  

For brokers evening and weekend work is the rule not the exception. Yet who gets paid more?

The median salary for lawyers two years out of law school runs about $80,000 a year, many working in firms with fringe benefits. The median gross income for real estate professionals in 2004, as reported by the National Association of Realtors was $49,000. That is without healthcare and retirement benefits which must be assumed by the broker. That is also before the broker pays for advertising, website hosting, gasoline and other expenses.

Within their limited practice license, the brokers are worth as much as the lawyers. The broker’s transactional work is emotional and tense. Thanks to a yearly accretion of fresh laws, new forms, and court precedents tightening broker liability … the broker’s work is equal to the personal injury lawyer’s in complexity and technical demand. 

That the brokers don’t get paid as much as the lawyer has nothing to do with the money at stake, the professional responsibilities and ethics demanded, or a lack of  ‘round-the-clock dedication to client service. The real estate brokers are worth their commission … and more.