In a real estate transaction, there鈥檚 always some level of negotiation. If you鈥檙e the seller, you face haggling not only with prospective buyers, but also with the person you鈥檙e working with to seal the deal: your real estate agent.
Thanks to a federal lawsuit that was recently settled, the way聽聽work will change in July 2024 (pending court approval). If you鈥檙e looking to save some money, here鈥檚 what you need to know about how commissions work, and how to agree on a rate that both you and your agent can feel good about.
How real estate commission works, and who pays for it
A generation ago, real estate commission rates were typically around 6% of a home鈥檚 sale price. But the average real estate commission rate has gone down in recent years to just under 5% of a home鈥檚 sale price,聽, a real estate research and consulting firm, and to Anywhere Real Estate, the parent of Century 21, Coldwell Banker and other brokerage brands.
Under the current system, the fee is typically paid by the seller at closing, and it鈥檚 customarily split down the middle between the seller鈥檚 agent and the buyer鈥檚 agent. (So, for a 5% commission, each agent would earn 2.5%.) On a $400,000 transaction, which is around the聽, the 5% fee amounts to $20,000.
Agents and brokerages can offer a variety of commission structures, though, with some marketing flat fees or other incentives. So there may be opportunity to negotiate the rate if you鈥檙e looking to save on the聽.
鈥淭here are agents and brokerages that reduce, discount or coupon their services,鈥 says Kevin Van Eck, an executive with @properties, a brokerage in Chicago. 鈥淓ach agent, along with their brokerage, can determine where they set commissions based on the value and success created.鈥
Can you negotiate Realtor fees?
Often, yes, there is room for bargaining. And as of July, there may be even more room. As a result of a lawsuit involving the National Association of Realtors (NAR) and several major brokerages,聽聽will take effect that month that will mean sellers no longer have to cover the cost of the buyer鈥檚 agent鈥檚 fee, which may lead to more aggressive price competition among buyer鈥檚-side agents. In addition, listing agents will no longer be permitted to state the buyer鈥檚 agent commission in the MLS (multiple listing service), as has been common practice.
Your success at negotiating often depends on an individual agent鈥檚 circumstances, says Dave Liniger, chairman and co-founder of RE/MAX Real Estate. 鈥淪ome agents are dead-set,鈥 he says. 鈥淥ther agents need the business so bad they鈥檒l readily negotiate.鈥
As you prepare to list your home for sale, you may want to聽聽to find the right one for the job. Ask each agent about their commission rate and what exactly you鈥檒l be getting for that price. Consider not only how the agent plans to market your home, but also their skill in pricing it, experience, resources and track record.
鈥淚t鈥檚 OK for a seller to ask about the commission, but the best time is after talking with the agent and understanding their experience, how they will create exposure for the home and the value they bring to the table,鈥 says Van Eck.
Liniger suggests that sellers invite three to five listing agents to their homes to make their pitches. The competing proposals will let you see how much agents charge, and give you leverage to bargain for a better deal. 鈥淵ou don鈥檛 get if you don鈥檛 ask,鈥 he says.
You might also consider weighing what you learn from full-service agents against the services of a聽. Just keep in mind that the discounter鈥檚 offerings may be limited compared to those of a traditional agent.
How to negotiate real estate commissions
Once you understand exactly what you鈥檙e paying for, you will be in a better position to ask for a discount. Here are some tips:
- If you鈥檙e able to offer the agent more than one listing opportunity, that might be a compelling argument for a reduced commission. 鈥淚f [you’re] a real estate investor who is looking to offload several properties, I would definitely talk about the commission,鈥 says Dana Bull, an agent with Compass in the Boston area. Most agents welcome repeat business, she says.
- If you don鈥檛 have another listing opportunity of your own to offer, try leveraging your ability recommend the agent to others in your neighborhood or network. This might be especially impactful if you know they are looking to build their business. 鈥淚 can鈥檛 just slash my commission, but I might be willing to give a slight discount if the client offered some sort of other strategy to get more business after the sale,鈥 Bull says.
- 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 foresee the need for additional services 鈥 鈥渋f an agent is coming in to basically just do some hand-holding, keeping the transaction on schedule and assisting with paperwork,鈥 Bull says 鈥 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 in your favor. Liniger says an agent who can represent you on both the sale and the subsequent purchase will likely be willing to cut 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聽, for most homeowners, the聽聽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鈥檚 commission can work in your favor, but an agent can walk away if they don鈥檛 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鈥檙e not in a rush, consider waiting until after the July rule change to see how things shake out. Ultimately, it鈥檚 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.
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漏2024 Bankrate.com. Distributed by Tribune Content Agency, LLC.
