Saying the analysis does not hold up because it does not apply to the 0.001% of the agents who make more than $1M is really stretching it. I never claimed it was true in all cases.
i was simply trying to put the commission on 1.6mil sale in context. how many properties does the avg agent sell in a year? more than one, yes? so one should assume that for the 1.6mil seller as well. surely there are agents for whom such is an avg sale. this is not such a high price in the Silicon Valley and other grossly inflated markets, is it? the avg selling price in Aspen is 2 million, i have heard. it is silly to consider what the take-home is on such a sale unless one considers the situation of an agent for whom said sale is avg.
thus, 10 such sales would be 480K, and 20 about 1 mil. these are not such unreasonable starting points if one is just considering units, no? but you are the agent, so go ahead and tell me what is the range of units sold per agent.
Obviously, I am referring to relative (i.e. a % of gross income) and not absolute numbers.
you cannot seriously be referring to % of gross when you apply 15% FICA to this commission, unless you think this agent sells only 3 properties a year.
A low gross income agent will probably have very low staff and office expenses (he is given a desk at the real estate office or uses the dining room table and is his own secretary), but higher fixed expenses (e.g. MLS access fees, dept. of real estate fees).
you seem to think this all comes out of FICA. but an agent w/his own MLS access and office and staff on his own payroll surely doesn't need to pay 80% of his commission to a "boss".
Think of it as any other business - and start thinking gross margins, net profit, etc. The concept is the same, and few businesses will end up with net profits more than 10-20%.
the reason i am so skeptical of your scenario is precisely because that is how i think of it. i myself happened to be self-employed my entire career. thus i am very familiar with the obstacle course of expenses you put up to whittle a $48,000 check down to $2400. and i can recognize that many of those obstacles are overstated and unrealistic.
As for the vacation, you completely miss. I am not talking about the cost of the vacation itself, I am talking to the cost of the vacation time
no, you are mistaken, because you are double-counting. if, again, one considers a person with 1mil income, then that is the yearly income. it already incorporates whatever downtime they take. and you might be surprised to learn that many people thus compensated--and in fact many self-employed in general--do not take the one-month vacation which for some reason you think they require since Dick Grasso got one (i'm not sure why Grasso, a bureaucrat who made 100x the amount of the 'self-employed' 1mil RE agent, is a relevant comparison; since his salary is 100x that of the agent, you might as well compare the 1mil agent to a 10K burger flipper whose income differs by 1/100x...)
the point is, if somebody makes 1 mil a year, then that's what they make. they don't dock that amount 10% because they take a vacation.
and also, i have never known anyone to consider their pay "docked" another 10% due to their retirement contributions, even though, as nonsocialized workers, they must save out of current earnings for retirement. the fact is, they pass the funds from the right pocket to the left. the govt even gives them a tax shelter for it. for our 1mil RE agent, this will probably be a lot less than 10% because, even maxing out on the SEP contribution, i think it is like 25% up to 250K, which would be just 6.25% of 1mil. nevertheless, 62.5K is a nice yearly contribution, but it just goes into the retirement account. the person's "net worth" doesn't go down because of it, and for a person making this yearly income, it is not like they still can't have a decent lifestyle while saving 6.25% of gross, think you not?
having said that, i want to tie this back to what you were saying earlier about the military. you will find i do not disagree with you as much as you think. specifically, i think situations like the military, where pay is low but side benefits very handsome, is probably a good deal for a lot of people (from a financial perspective; i think the military is not so good in other ways, like the aforementioned free opportunity to go get killed in Iraq, which you for some reason have not addressed, even as it must weigh heavily on the minds of all the cannon-fodder under 25 years of age). in particular, having a defined-benefit pension from a reliable source is very valuable in today's world of low interest rates.
one can think of such a pension as a bond, and the present value of the bond goes up as interest rates go down. also, of course, health care benefits are great to have.
based on these considerations, of course you are right in claiming that military compensation would need to be adjusted significantly upward to match a private-sector equivalent, especially when compared to self-employed compensation.
nevertheless, i am EXTREMELY skeptical of your scenario where somebody who would, say, collect a 48K commission routinely, is somehow not making much money, or is perhaps in a financially inferior position to a military person.
i say this having always paid my own way in health care, vacations, retirement, FICA, etc., not to mention all those business costs which you think prevent people from making any money in self employment. |
