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!

Looking at the costs of selling a house

When it comes to the preparations for selling your home, you’ll probably spend a lot of money. There are many expenses involved in preparing your house for sale. Let’s take a closer look at some of these costs.

Real Estate Agent Commission

The commission for a REALTOR®, or real estate agent, will be your first expense. It will typically cost between 5 and 6% of the sale price. Even if you need to pay REALTOR® or agent fees, most real estate professionals recommend that you hire a listing agent to sell your house. It may be tempting to sell your home yourself. However, there are many reasons why you should hire a REALTOR® or real estate agent.

• Sometimes, a buyer’s representative won’t show houses if there isn’t a selling agent.
• Selling a by-owner (FSBO) home may cost you more in the long term.
• Agents can negotiate for you and ensure you receive a fair price.
• When it comes to preparing your house for sale, real estate agents can provide valuable guidance.

You can list your home without the help of a real estate agent. However, if you want to save on the cost of a real estate agent, then you should be able to manage all negotiations, valuations, and paperwork yourself.

• Pre-inspections

Pre-inspections typically cost between $300 and $500. A pre-inspection can seem unnecessary, but it could be a worthwhile investment. Potential home buyers often back out when they discover unexpected problems with their home appraisals or inspections. Delays in selling can prove costly and frustrating.

Seller concessions are very common. While there are limits to the amount of a home’s appraised value and purchase price that can be offered in a seller concession, they won’t stop you from spending a lot. If the mortgage is a conforming loan, the seller can contribute as much as 9% with a downpayment of less than 25%.

You can negotiate better if you know of potential issues and have already incorporated them into your home repairs budget or terms.

• Professional cleaning

A professional deep clean typically costs between $200 and $400. The square footage of your home will determine the cost. You could probably do this yourself. It’s up to you to decide if you are willing and able to put in the effort during a stressful sale.

• Home improvements and repairs

There are many home improvements that can increase the value of your house before you sell it. Not all renovations are equal before selling. Kitchen renovations can be very cost-effective and increase your home’s value. Windows, however, are a big money sink. On average, you’ll spend about $4,000, which will likely be a worthwhile investment.

• Landscaping

The average seller spends $145 on landscaping. It’s up to you to decide if a little bit can make a big difference in your home’s curb appeal or if it’s better to leave your house as is.

• Home staging

Staging can help you set your home apart from the rest and give buyers that “love at the first sight” feeling.

Because of the logistics of moving furniture around, many people find it difficult to stage their homes without professional help. You will need to put in a lot of effort to make your home attractive to a broad range of people. Remember that a quick sale can save you a lot of money.

With effort and preparation, staging a home is possible. It costs around $2,000 per month, assuming it is only for one month, including the furniture rental fees. The cost for a stager who will only declutter and arrange is typically around $800.

• Professional photography

Selling your house requires professional photos. The average cost of professional photography is around $200. This may not be the budget you have in mind, but your home must look its best for any photos.

• Keeping the utilities on

Nothing is worse than visiting a home without air conditioning during the summer heat. If there is no air conditioning, lighting, or running water, it can be difficult for home buyers to envision themselves living in that space. 

You will need to ensure that your utilities work even though your home is no longer your primary residence. Energy Star estimates that the average utility bill costs $171. However, this will vary depending on how much you use and how energy-efficient your house is.

• Home warranty

A home warranty gives peace of mind to a buyer looking to buy a refrigerator or fix their furnace. A one-year buyer’s warranty on their home costs between $350 to $600, depending on where you live and the service provider.

• Capital gains tax

The capital gains tax is not applicable in most cases. To be sure, you should check your situation. This tax may be required if you have lived in your property for less than a year, are selling a vacation or rental property, or if the property has increased in value by more than $250,000 ($500,000 if married filing jointly),

Final costs for the seller

 

• Closing costs

It’s not just buyers that have to deal with closing costs. There may be a transfer tax or a prorated tax on your property. The amount of this tax varies depending on where you live, so check the regulations in your area.

You may have to pay for the title search as a seller to ensure your claim to the property is clear. This is a common seller concession. It is usually $200-$400. To ensure that the title is clear, it’s common for the seller to cover the buyer’s title insurance.

There may be brokerage fees, escrow fees, or courier fees, depending on which lender you are dealing with and the terms of your purchase agreement.

• Moving costs

Moving can be a stressful experience for many people. They may decide to pack their belongings and rent a truck, then drive the entire distance. Others hire a moving company to help them focus on other tasks while they sell their home. You’ll pay approximately $2,300 to move within 100 miles of your home and $4,300 to move further.

It all depends on the services you require. A full-service move will be more expensive than one that you do yourself. It may seem expensive to pay moving expenses, but it can help you reduce stress.

• Mortgage balance

You will need to repay the loan balance if you have a mortgage on your house. In most cases, you can pay off the mortgage balance from selling your house. You can also use any extra money to make a downpayment on your new property. If you cannot sell your house at the expected price, you may have to borrow from your savings to pay the mortgage payment.

A prepayment penalty may apply to you if your mortgage is paid off early. Ask your mortgage lender if you need to add a fee to your loan balance.

What is the average cost to Sell a House?

Let’s look at an example to show how much it would cost for your house to be sold if it was valued at $250,000 based on the numbers mentioned earlier. This is just an example, and it may not reflect all costs and fees associated with selling a house.

Calculating Total Costs To Sell A House

Cost of selling a house:	Seller’s costs:
Agent commission fees	$12,500
Inspection	$400
Cleaning	$200
Repairs and improvements	$4,000
Landscaping	$145
Staging	$2,500
Utilities	$171
Photography	$200
Closing costs	$7,500
Moving costs	$3,000
Home warranty	$450
Total cost:	$31,066

 

The cost to sell a $250,000 home might cost as much as $31,066 by this estimate. Of course, the seller could forgo some of the above expenses to try and reduce their selling costs. This is why it’s an excellent idea to create a budget for how much you want to spend on the property before beginning the selling process and calculating the desired listing price.