So how to negotiate a real estate commission? Despite common belief, real estate commissions are negotiable. However, when bargaining, real estate agents behave in three ways. The first group will readily accept the reduction. The second group will not negotiate because they don't have to. Finally, some agents can not reduce commissions due to higher broker shares. This guide will help you with negotiating a real estate commission effectively. You can save a lot by knowing these tips.
- What Is A Real Estate Commission, And Who Pays For It?
- Can You Negotiate Real Estate Agent Fees?
- How To Negotiate A Real Estate Commission?
- Frequently Asked Questions (FAQs)
- The Bottom Line: How To Negotiate A Real Estate Commission
What Is A Real Estate Commission, And Who Pays For It?
Real estate agents provide many services like leads, marketing, negotiation, and documentation. These services make the home buying/selling process manageable and smoother. Agents charge a real estate commission for their services. Although agents like a percentage share, some may offer a flat fee and other incentives. The usual commission rate varies between 4%-6%. Yet, in most cases, it stands at 5%.
While it is still a massive amount for the high-value property, many parties take their cut in the commission. For example, real estate brokerage may get a share of the fee for their office and services. Then, the seller's and buyer's agents divide the remaining commission. So, for example, if a property sells at $300,000 and the commission rate is 5%, then the total commission will be $15,000. If the buyer and seller agents and their broker divide it equally, they will get $3,750 each. Of course, they may have set up some other formula between them.
Who pays for a real estate commission is a tricky question, and the answer is complex. For example, in an actual deal, usually, the seller pays the commission when closing the deal. Yet, the buyer is paying for everything because the seller already accounted for all fees in the selling price. So for documentation purposes, the seller pays the commission. However, the buyer pays for all expenses, including commissions.
Can You Negotiate Real Estate Agent Fees?
Like any other business deal, real estate commissions have room for negotiations. Realtors know that some clients will ask for commission negotiation and are ready for it. However, there are some points to consider when negotiating realtor commissions.
First, you should know what the average commission in your area is. You can get this information by asking several agents to find a mean price. This baseline will help you in the bargain because if everyone is charging 5%, then there is no point in giving 6%. Second, what is the selling price of the property? The higher the price, the more commission an agent will get. Thus, the more eager the agent will be to negotiate the fee.
Third, you want to pay a minimum fee for the best services, not average ones. Thus, before negotiating the fee, ask the realtor what services they will provide. Also, look at their track record, experience, and resources. This way, you can compare services and the fee charged by two agents. For example, a realtor charging 3% for meager services is worse than a realtor charging 5% for excellent services.
Finally, you will find some agents who will be happy to refuse the deal instead of reducing fees. In that scenario, you must compare the agent's professionalism with the commission. Whenever in doubt, prefer the professional service over less commission.
How To Negotiate A Real Estate Commission?
Now that you know your area's expected services and average commissions, you are ready to do the real bargain. Negotiating the real estate commission can be a win-win game. Here are a few tips to help you get the best services at the minimum possible fees.
Upsize Your Listings
You can upsize your listing with that agent to negotiate a real estate commission. For example, if you have more than one property to list or buy, it can be a compelling reason for the agent to give you a commission discount. It is a win-win situation because they will be making more on one customer, and you will save on the commission of each property.
This tip benefits investors wanting to sell or buy many properties at once. Similarly, people who want to sell a house before buying another can also use this tip. However, if you currently have only one property, you can still use this tip if you will be listing other properties with them shortly. After all, every business person likes repeat customers.
Promise More Business Through Referrals
Negotiating a real estate agent commission is easier when offering more business. One way to provide more business is through referrals. If you have good links and are satisfied with the agent, you can send many customers to them. The trick is to genuinely help them get more business in return for better service or lower commission fees.
Another angle to this tip is to favor them through social media. Social media can strongly impact business these days. Thus, you can offer a favoring post or even a video testimonial on your channel. In addition, you may favorably review their app or maps listing, etc. This strategy is helpful for agents looking to enhance their client base.
Explain Why It Is Easy To Sell Your Property
There may be cases when buying or selling a property is easy. In this case, the realtor has to play a minimal role, or you may not need many of their services. If this is the case with your deal, explain it while negotiating a real estate commission. For example, if you are selling a house and there are many interested buyers in that area.
Similarly, if you are buying a home in a buyer's market, it would be a plus point. Similarly, if you already have a buyer or seller arranged, the real estate agent's job is facilitation only. Pricing your offer wisely also has a role in this strategy. Because the more your price is acceptable, the faster the deal will move. Hence, the agent will have less work to do. In summary, you can convince the agent that this deal will only take a little of their resources in all these cases. Thus, a price cut is justified.
Show Them The Offers Of Other Real Estate Agents
You should thoroughly check the market for commission rates and their services. Once you have this data, you can bargain with a typical agent by showing lesser offers. Also, having market data, the agent will perceive you as a well-aware client. Your professional image and readiness will force them to bargain readily.
This strategy will be more effective in cases when you have a counteroffer by a more prominent agent. The agent may try to defend their position by emphasizing the quality of their services. However, you can counter that point by describing the plus points of other agents.
Things To Consider While Negotiating Commissions
- You should not knowingly or unknowingly insult an agent. Be polite and respectful to them. All agents are professional. You are negotiating to get the best deal, not to win an argument.
- Self-service is a bad option when you can have professional work for you. Thus to only reduce the commission, refrain from committing to perform some services yourself. You can not beat them in quality and performance. Also, you may get by without doing that.
- Be ready to move on or start a new search. You may find yourself in a position where negotiations are going nowhere. In that case, start a new search instead of pushing an old one.
Frequently Asked Questions (FAQs)
How to negotiate a real estate commission is both an art and a science. Here are the top FAQs our clients regularly ask.
What Is A Typical Real Estate Commission?
The real estate commission rate for average home sales varies between 4%-6%. The buyer and the listing agents split this amount, while the broker will also take a cut. You may get a fee reduction when selling your house depending on market conditions, selling price, etc. However, the national average rate stands at 5% these days.
Should I Go For A Dual Agency To Negotiate A Lower Commission?
In some rare instances, an agent represents both the buyer and the seller. It is called "dual agency." Although you may save some fees, it is not advisable to go for a dual agency only to negotiate real estate commission. The reason is the dual agency setup is not only controversial but also poses challenges like a conflict of interest. Moreover, it might be illegal in your area.
The only proper way to go for a dual agency is when you already know and trust the other party. In that case, the role of the agent is minimal. Then if it is legal in that locality, you can hire the same agent to close the deal and save the commission.
What If The Real Estate Agent Is Representing The Buyer And The Seller?
A dual agency is a setup in which the same real estate agent represents both buyer and seller. One obvious benefit of dual agency is a lower commission rate. An agent is willing to negotiate a real estate commission because a single agent will get a fee from both parties. However, hiring the same agent may have some side effects.
Firstly, the dual agency may be illegal in some states. For example, dual agency is illegal in Alaska, Colorado, Florida, Kansas, Maryland, Texas, Wyoming, and Vermont. Some states might require double agents to act only as transactional agents without taking any side. In this setup, they can not assist or advise any party. So check for the legality of this option first.
Secondly, there is a built-in conflict of interest in this setup. The same agent represents both parties, so it can be challenging to defend the interest of both parties. Opponents believe that a single agent may compromise the interests of both or weaker parties.
However, this might be fine in rare cases where both parties can care for themselves, like seasoned investors. Similarly, if both parties have complete trust in each other, then not only is dual agency a proper way, but the actual work to do will also be less. The agent just has to do the paperwork and processing. Thus if you can handle these risks effectively, you can go for a dual agency. Otherwise, it is better to avoid it.
The Bottom Line: How To Negotiate A Real Estate Commission
There is no fixed price for a property or agent fee. Thus how to negotiate a real estate commission is a shorter version of how to negotiate a house price. Because, in both cases, you must convince the other party about the merits and demerits of asking price vs. value.
The question is can you negotiate real estate agent fees? The answer depends on many factors, such as whether an agent is not in dire need of business, believes they are providing excellent value, or if the sale price is low. Like all other business deals, negotiating a real estate commission is only possible if both parties agree. As a result, you may pay less commission, or your agent may walk away from the deal.
As two agents may vary a lot in terms of quality and quantity of service, there is no point in comparing their commissions only. Instead, finalize an agent on the merit of service quality only. Once you have shortlisted one or two ideal agents, bargain with them on a commission fee. If they disagree and you end up paying their preferred rate, you will at least get the quality of service in return, which can be a real bargain. Please feel free to contact us if you need any help.