Negotiating Real Estate Commission
One of the largest costs when selling a home is the real estate commission. This is the amount you pay an agent to help sell your house. Fortunately, commissions are absolutely negotiable.
Whether you’re an investor or you’re buying or selling your own home, you should always negotiate real estate commission. Let’s discuss why, and how to do it.
Real estate commission and who pays it
A real estate commission is the payment that a realtor gets paid to help their client sell or buy a house. While commissions may sometimes be flat rates, most agents are paid a percentage on the final sale price of a home.
The seller typically pays the full commission of approximately 6%, which is split between the listing agent or the buyer’s agent. The buyer does not usually have to pay any commission for their agent. Instead, commission is typically deducted from the sale’s profits at closing.
As an example, if a home is sold for $250,000, and there is a 6% split 50/50 commission, the seller would pay $15,000 and each agent would get $7,500. Each agent will pay a percentage to their broker, and overhead expenses from this amount.
Why you should always negotiate real estate commission
Although real estate agents are independent contractors and may have to pay a fixed amount to their broker for certain services, they often have some discretion in the percentage they charge.
In the same way a landlord may have overhead expenses that need to be paid on real estate investments but are able to set their own monthly rent, a real estate agent has a say over how much commission they’ll receive. By reducing their own commission percentage, they are simply lowering the amount they’ll make on the sale.
You may also be able request additional services, such as professional staging or virtual tours, for no additional charge. If these are services that the agent typically provides, you may be able to negotiate a lower commission by waiving them. Be careful not to reduce services too much though, as this could lead to a drop in selling price.
How to negotiate a lower real estate commission
When you are trying to negotiate a commission for your agent, it is important to have a plan and a reason why you might be entitled to a lower commission. These are some tips to help you prepare for negotiations and how to secure a lower rate.
Interview multiple agents
To choose the right real estate agent for you, while gaining some bargaining power, you should always interview a minimum of three agents prior to selecting one. Realtors give advice that can be invaluable, so you need to ensure they are not only knowledgeable in the local market, but also that they match your personality and can help you achieve your goals when selling your home.
Taking a chance with a newer agent can sometimes be beneficial. They may be willing to offer a lower commission rate in exchange for the chance to build their client base.
Take the local market and season into consideration
Consider the local real estate market before you present your case to receive a lower commission. Listing agents in a hot seller’s market may be more likely than others to negotiate a lower commission because your home will likely sell quickly and with less work from the agent.
However, in a buyer’s market an agent might not be as willing to accept a lower commission. Typically this means that there is an abundance of inventory and the house may take longer to sell. This will create more work and time for the agent to get the house sold.
You may also find that agents are more open to negotiating commission rates if you sell in an off-peak season. Generally they will have less business during these times, and may accept a lower commission for the opportunity to sell your house.
Luxury homes
If you are selling a property with a higher asking price, an agent might agree to a lower commission. Agents can make a great commission on a more expensive house, even with a reduced rate.
Agents may also find it easier to sell homes in more desirable areas. This will require less time spent on things like open houses, which in turn will mean less work on their part.
Multiple transaction and repeat business
If you are an investor, you may be able to negotiate a lower commission rate with the promise of multiple transactions. They may be hired to sell one home and purchase another, or they may be able to help you purchase multiple properties simultaneously.
Agents dream of securing investor clients. Although residential clients might only purchase or sell one to two homes per decade, larger investors may buy multiple properties in a short period of time. An agent might offer a low rate to entice investors to return business, knowing they will be using them again for future transactions.
Don’t sacrifice quality for lower commissions
It is not always best to go with the least expensive option. Although investors are skilled negotiators, they typically avoid choosing the cheapest real estate agent.
An experienced agent that is familiar with the area can save you money by knowing their value and keeping you from making a potentially regrettable deal.
Conclusion
No matter what type of buyer or seller you are, you should always negotiate real estate commission. Just make sure you are dealing with an experienced and reputable agent, and don’t be afraid to ask. Whether you’re an investor doing multiple transactions in a short period of time, or selling your personal home, you may be surprised at just how much you’ll save!