During a real estate deal, negotiation is always involved. If you are the seller, you have to bargain not only with potential buyers, but also with your real estate agent to finalize the deal.
Due to a recent settled federal lawsuit, there will be changes in how real estate commissions function starting in July (pending court approval). If you want to save money, here's what you should understand about how commissions work, and how to agree on a rate that satisfies both you and your agent.
Understanding the operation of commission and the responsible party for payment
In the past, real estate commission rates used to be about 6% of a home's sale price. However, the average rate has decreased in recent years to just under 5% of a home's sale price, according to Real Trends, a real estate research and consulting firm, and to Anywhere Real Estate, the parent company of Century 21, Coldwell Banker and other brokerage brands.
Currently, the fee is typically paid by the seller at the closing, and it's usually divided equally between the seller's agent and the buyer's agent. (So, for a 5% commission, each agent would earn 2.5%.) For a $400,000 transaction, which is about the median sale price nationwide, the 5% fee would be $20,000.
Agents and brokerages may offer various commission structures, including flat fees or other bonuses. This means there may be room for negotiation on the rate if you want to reduce the cost of selling your home.
“There are agents and brokerages that lower, discount, or offer coupons for their services,” mentions Kevin Van Eck, an executive with a brokerage in Chicago. “Each agent, together with their brokerage, can determine the commissions based on the value and success they provide.”
Is it possible to negotiate Realtor fees?
Often, yes, there is room for negotiation. And from July, there may be even more room. As a result of a lawsuit involving the National Association of Realtors (NAR) and several major brokerages, new commission rules will come into effect that month. This means sellers will no longer have to cover the cost of the buyer’s agent’s fee, which may lead to more aggressive price competition among buyer’s-side agents. Furthermore, listing agents will no longer be allowed to state the buyer’s agent commission in the MLS (multiple listing service), as has been common practice.
Your success in negotiating often depends on an individual agent’s circumstances, according to Dave Liniger, chairman and co-founder of RE/MAX Real Estate. “Some agents are dead-set,” he says. “Other agents are in such need of business that they are willing to negotiate.”
When preparing to list your home for sale, you may want to meet with a few listing agents to find the right one for the job. Inquire about each agent's commission rate and what services are included for that price. Consider not only the agent's plans for marketing your home, but also their expertise in pricing it, experience, resources, and track record.
“It’s fine for a seller to inquire about the commission, but the best time is after discussing with the agent and understanding their experience, how they will promote the home, and the value they bring to the table,” Van Eck suggests.
Liniger recommends that sellers ask three to five listing agents to come to their homes and present their offers. By comparing the proposals, you can see how much agents charge and have the power to negotiate for a better deal. He says, 'If you don't ask, you don't get.'
You might also want to consider comparing what you learn from full-service agents with the services of a discount broker. Just remember that the offerings from the discount broker may be limited compared to those of a traditional agent.
How to negotiate real estate commissions
Once you understand exactly what you are paying for, you will be in a better position to request a discount. Here are some tips:
• If you can offer the agent more than one listing opportunity, that could be a convincing reason for a reduced commission. Dana Bull, an agent with Compass in the Boston area, says, 'If (you're) a real estate investor who is looking to unload several properties, I would definitely talk about the commission.' She mentions that most agents welcome repeat business.
• If you do not have another listing opportunity of your own to offer, try using your ability to recommend the agent to others in your neighborhood or network as leverage. This might be especially impactful if you know they are looking to expand their business. Bull says, 'I can't just lower my commission, but I might be willing to give a slight discount if the client offered some other strategy to get more business after the sale.'
• If you have a home in a sought-after area, or a buyer already interested, or an unusually high sale price, your agent may not need to do as much to earn their fee. If neither party can see the need for additional services — 'if an agent is coming in to basically just do some hand-holding, keeping the transaction on schedule and assisting with paperwork,' Bull says — that might be another good reason to propose a slightly lower rate.
• If you plan to buy a new home while selling your current one, use that to your advantage. Liniger says an agent who can represent you on both the sale and the subsequent purchase will likely be willing to reduce their fee.
You may be considering skipping the commission conversation entirely and selling your home yourself. If so, be aware: While an experienced house flipper might be skilled enough to list a home without an agent, for most homeowners, the for-sale-by-owner route can be more challenging, more costly and more time-consuming in the long run.
Bottom line
In any negotiation, both parties must be willing to give and take. Negotiating your agent’s commission can work in your favor, but an agent can walk away if they don’t necessarily need your business. Keep in mind, too, that it can make sense for sellers to pay more for additional services instead of negotiating the commission down, Bull says. These might include higher-end marketing, home staging or additional mailers, for instance. And if you’re not in a rush, consider waiting until after the July rule change to see how things shake out. Ultimately, it’s important to find an agent you can speak with openly about cost, and who you trust to do the best job to sell your home.
