Thu. Aug 18th, 2022
can-i-negotiate-a-real-estate-agent’s-commission?

The commission you pay your real estate agent to help sell your home may seem steep. You want the best return on your largest investment so you can put it toward a new home, your kid’s college fund, or retirement. Fortunately, the fee you pay your real estate agent is absolutely negotiable.

In this article, we’ll walk you through the process of negotiating your real estate commission, and provide insights into whether seeking a lower rate will fit your selling objectives. To better answer your questions, we spoke with top-performing agents Rick Ruiz, who sells homes nearly 50% quicker than the average Las Vegas agent; and Robert Dombrowsky, who works with over 85% more single-family homes than the average Fair Lawn, New Jersey agent.

What is a typical real estate agent commission?

The average commission rate for a home sale is 5% to 6%, typically split 50/50 between the listing (or seller’s) agent and the buyer’s agent.

Who pays a real estate agent’s commission?

The seller typically pays the commission to both the listing agent and the buyer’s agent. However, the seller doesn’t pay the fee directly to the agents. The escrow or settlement company that is overseeing the closing receives payment from the buyer’s lender (or the buyer if it’s an all-cash purchase) and then distributes all payments, including the commission checks to each agent’s brokerage at closing. The listing agent and the buyer’s agent then receive their commission from their brokers.

“At the end of the day, the commission payment comes out of the transaction,” says Dombrowsky.

Do the buyer and seller agents keep all the commission?

No. Agents receive part of the total commission from their brokerage. The amount the agent keeps – typically 50%, but up to 95% – depends on each agent’s experience, the number of homes they’ve sold, and the brokerages that they work for.

Below is an example of how a 6% real estate commission is typically split in a traditional agent-assisted home sale. We’ve used a sale price of $400,000.

6% commission split example

Seller pays 6% commission: $24,000
How that $24,000 might be split:

Seller commission Selling brokerage share  Selling agent share
$12,000 (3%) $6,000 (1.5%) 6,000 (1.5%)
Buyer commission Buyer brokerage share  Buyer’s agent share
$12,000 (3%) $6,000 (1.5%) 6,000 (1.5%)

In our example above, the brokerage received 50% of their agents’ commissions. Here are the (agent/broker) commission splits for some of the top brokers in the country:

  • Century 21: 50/50
  • RE/MAX: starting at 60/40
  • Keller Williams:  70/30
  • ExP: starting 80/20
  • HomeServices of America: starting at 80/20
  • Compass: starting at 80/20

Connect with a Top Agent

It takes just two minutes to match clients with the best real estate agents, who will contact you and guide you through the process. To connect with an agent, simply tell us a little bit about your property (single-family, condo, townhouse, mobile home, commercial, or vacant lot) and how soon you’re looking to sell.

Are real estate agent commissions negotiable?

Yes. Real estate commission rates aren’t set by law and are absolutely negotiable. The agent you hire may be willing to negotiate a lower rate and still provide more comprehensive services. The total commission that you negotiate with the listing agent may also set the rate for the buyer’s agent.

In fact, explains Ruiz, many agents arrive prepared to negotiate a lower commission during their first meeting with the seller.

Reasons why an agent may be willing to negotiate a lower commission rate

Experience and scalability. An experienced agent knows how to leverage technology and resources that enable them to sell more homes and still provide an exceptional experience to their clients.

“Top agents have the know-how to deliver an even better experience and service for less than six percent than an inexperienced agent can at charging the full six percent,” says Ruiz.

Competition between agents and brokers. In today’s hot (seller’s) market, more agents are entering the business, and competition between agents has increased. A rise in online discount brokerages that provide basic real estate services has also increased competition.

Rising market value. Today’s higher home prices lead to higher compensations for agents, even at a reduced commission.

“The rising value in today’s homes means an agent can charge a reduced commission and still be compensated handsomely”, explains Ruiz.

4% commission split example

For example, if you negotiate a 4% commission, below is how the final fee might be split on a $400,000 home sale.

Seller pays 4% commission: $16,000
How that $16,000 might be split:

Seller commission Selling brokerage share  Selling agent share
$8,000 (2%) $4,000 (1%) 4,000 (1%)
Buyer commission Buyer brokerage share  Buyer’s agent share
$8,000 (2%) $4,000 (1%) 4,000 (1%)

How can I negotiate a lower real estate commission?

1. Research and interview local agents

When hiring an agent, we recommended that homeowners research at least three agents. In addition to knowing the average commission rates for your area, know the rates of the agents you interview. Know exactly how much a real estate agent stands to make from your home sale.

Consider each agent’s presence in the neighborhood, their experience with homes like yours, and their clients’ reviews. Consider how successful they are. How many homes do they sell per year, and what are the results? While the average agent sells five homes per year, top agents sell 20 or more and secure 6% to 10% higher home prices than an average agent.

2. Pitch your commission offer

When making your offer, be sure to explain to the agent what you are looking for, why, and your selling timeline. When negotiating commission, consider your local market, the season, and your home’s sellability. Is there a high demand for homes like yours in the local market? Is your home in good repair, in a desirable neighborhood – is it appealing to buyers? Are you selling at a time when the market is active in your area?

When making your pitch, you should be prepared to show your agent you are committed to securing the highest home price for you, which means a fair compensation for the agent.

This may mean doing the following:

  • Get a pre-listing inspection that will inform any needed repairs.
  • Make pre-listing improvements and repairs that make your home more appealing to buyers.
  • Pay the full buyer’s commission to motivate the buyer’s agent to show your home.

When making your pitch, don’t do the following:

  • Don’t condescend or insult the agent. Any agents you interview are licensed professionals.
  • Don’t agree to perform services yourself or eliminate services in exchange for the lower commission. Unless you are an experienced real estate photographer, stager, or digital marketer, you don’t have the level of expertise your agent has or has access to.
  • Don’t offer to allow a dual sale in which the agent represents both the seller and the buyer, thereby securing a greater compensation. We’ll cover this more below.

3. Know your BATNA — what you’re willing to accept

Before you negotiate, decide on your best alternative to a negotiated agreement (BANTA) — what you’re willing to accept if the agent turns down your offer. Are you asking for 4% but willing to accept 5% for an experienced agent, an agent who has good energy, one who understands your needs?

4. If the agent agrees, secure the deal

If the agent agrees to a reduced commission, they’ll ask you to sign a listing agreement. This is a legal contract that you should read carefully before signing.

Review your listing agreement carefully to ensure:

  • The commission rate is clearly stated
  • Expected services are clearly stated
  • Check the small print for any added fees or eliminated duties

5. If necessary, start a new search

If you are not happy with the way negotiations are going — and if the timing of your sale or other factors permit — you may resolve to start the process over. Or the agents may walk away from the deal if they feel it is unfair. You can take what you learned and reach out to a new set of agents, modify your BATNA, and/or modify your pitch.

Get a Free Home Value Estimate

Enter a few details about your home and we’ll provide you with a preliminary estimate of home value in less than two minutes. This won’t be a guarantee of what your home will sell for, but it is a helpful starting point.

Q&A: More about real estate agent commissions

Are there drawbacks to negotiating a lower commission?

Commission motivates your agent to work harder and get a better purchase price on your home. Because the commission rate you agree on may set the rate for the buyer’s agent as well, if the commission is too low, agents may not be as motivated to show your home to buyers.

“Every extra dollar you pay in commission is the incentive for a buyer’s agent to show your home. Some agents will rush out to show a property with a higher commission rate. It’s not that they won’t show a home with a lower commission but they are more motivated to show the one that will make them more money,” explains Dombrowsky.

In addition, although a less experienced agent may be more willing to negotiate a cut-rate commission, the services you get in exchange for that low fee may not be in your best interest. You may not get a good experience from an agent who will work for a cut-rate commission. An experienced agent knows their worth in terms of the value they bring to your sale.

“At the end of the day, there’s a balance. You have to ask: Do I want that Realtor® that’s willing to work for that rock-bottom compensation?” says Ruiz.

Should I offer dual agency when I negotiate a lower commission?

Typically, no. When one real estate agent represents both the buyer and seller in the same transaction, that agent receives a commission on both sides of this sale, which may benefit the agent more than either the seller or the homebuyer. This is what is called a dual agency relationship. Arguably, a dual agency relationship can make the transaction more simple, but it is also a conflict of interest for agents, controversial in the real estate business, and illegal in some states.

Can I save money in my home sale by using a discount brokerage?

While you may be able to save 1% to 1.5% on the listing agent’s commission with a discount brokerage, you may be agreeing to only receive basic real estate services, depending on the brokerage. If you do receive an in-person agent, their services may be much less robust than those of a typical full-commission agent. What you save in commission fees, you could lose in the purchase price.

Can I save money selling my house myself?

Like with a discount brokerage, what you’ll save in commission fees, you may lose in the purchase price. This is because homes sold by top real estate agents typically sell for 16% more than those sold FSBO (for sale by owner). In addition, you’ll have to do all of the legwork yourself.

“There is a science to negotiating the best price and getting your offer accepted,” says Dombrowsky.

No matter the commission rate, hire an agent you trust

The most crucial part of your home sale – besides your home – is the agent you hire to help you sell it. You need a top real estate agent who will guide you through the process and secure the best price on your home and who is well worth the cost of the commission you pay.

“In real estate, it’s about the name on the back of your journey. It’s who’s going to be out there doing the work, publishing the listing, negotiating prices,” explains Ruiz.

A top agent has the experience, tools, and knowledge to scale their business, and the confidence to sell your home at the best price. For this reason, a proven agent may be willing to negotiate a lower commission rate, allowing you to pocket a little more of the profits while they’re still compensated fairly.

If you’re wondering where commission rates start for high-performing agents, we can help. Our commission calculator provides an overview of the current agent commissions in your area so you can get an idea of how much it costs to hire a top real estate agent to sell your home.

Header Image Source: (Zac Gudakov / Unsplash)

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