In selling a home, there are 3 major groups present: buyer, seller, and real estate agent. The buyer gets a beautiful new home, the seller gets to cash a big fat check, but what does the real estate agent get?
A commission, of course!
When it comes to this all-important fee, it’s essential to know what it is and where your money is going! In this article, we’ll cover what a real estate commission fee is, the pros and cons of negotiating commission rates, and 6 easy ways to negotiate realtor commission fees to help YOU save money, while also adding value to your realtor.
What is a Real Estate Agent Commission Fee?
Real estate agents usually work solely based on commission. Who pays this fee? Home sellers do. They’re usually the ones paying the entire commission fee, which goes to your listing agent, as well as a portion that’s thrown to the buyer’s agent.
Based on this fee, real estate agents will typically pay for their own advertising and marketing, business license, and insurance. However, commissions are only paid at the end of the home sale, when the title transfers. This means that the agent may work with the seller months before even getting paid.
What is the Standard Commission Fee?
When it comes to a real estate agent’s commission, there is a common misunderstanding. Many misbelieve that there is a standard percentage within the real estate industry. But, in truth, there is no set price. Consequently, this gives you wiggle room to negotiate your agent’s rate.
Logistics of Commission Rates: What Realtors Actually Get Paid
The current average commission rate nationwide is approximately 5.45%.
So, if you’re a home seller and your realtor charges you a 6% commission to sell your $200,000 home, that 6% ($12,000) is split with the buyer’s agent. This leaves your agent with 3% ($6,000).
Still sounds like a pretty great commission, right?
Well, it sounds good until your real estate agent has to share their portion (anywhere from 25%-40% of the 3%) with their brokerage office. At the completion of the transaction, your realtor may end up with as little as 60% of the 3% commission. This ends up being around $3,600 that isn’t paid for months until the title for the house is transferred.
So, the question remains: Should you negotiate your realtor commission fee?
Negotiate Realtor Commission Fees: Pros and Cons
Regardless of what an agent or broker might tell you, by law, commissions are always negotiable. But with the low commission rates and extended period of time it takes to even pay your agent, should you?
Well, let’s take a look at the pros and cons of negotiating your real estate agent’s commission.
The Cons
In looking from both perspectives of the realtor and the seller, we foresee 2 cons to negotiating your realtor’s fees.
1. You Get What You Pay For
Everyone wants a resilient real estate agent that will get the best possible price. But if your realtor easily agrees to lower a commission than is typically charged, how great will that agent be at negotiating for you a good deal.
You don’t want a real estate agent who caves too quickly on his own pay when you’re counting on him/her to broker the best sale price and terms for you.
2. Less Advertising for Your Property
For many agents, the marketing dollars for your property come from their commission. So, a lower commission could mean less advertising for your property.
The Pros
Selling a house is expensive, and realtor fees are one of the largest accompanying costs. Even a minor fee reduction could actually save you thousands.
To put this into perspective, the current medium of value for homes in the U.S. is $346,800, which would translate roughly to $18,900 in realtor fees. If you were to negotiate just 1% off of your commission, you’d save over $3,500. Now, if you knocked off 2%, your savings would jump to $6,900. That’s a lot of money!
But, how can you negotiate in a way that benefits both the seller and the realtor? We’ve compiled a list of 6 easy ways to make the negotiating process much less stressful and adds mutual benefit to both the seller and the realtor!
6 Easy Ways to Negotiate Realtor Commission Fees
The goal of negotiating isn’t to “win” necessarily. You always want to aim for a mutually beneficial outcome for both parties involved! Instead of asking only for modifications, think about how you can add value to the partnership as well.
Here are 6 easy ways you can do that!
1. Evaluate Negotiation Leverage
How much negotiating leverage do you have? It’s a good idea to determine how much leverage you have based on how easy it will be to sell your home.
Specifically, pay close attention to:
- How much demand there is for a home like yours in your area?
- How much have homes like yours recently sold for?
- What is your realtor positioned to earn based on your target housing rate and price?
Once you have an answer to these questions, you can calculate how much leverage you will have to negotiate realtor fees.
2. Find Your Area’s Average Commission Rate
To determine how much you should negotiate, it’s important to know the average commission rate in your area. As we said earlier, the average nationwide is 5.45%, but this varies from market to market.
For instance, in New Jersey, the average commission rate is 5.17%. But if we look at the average commission rate in Missouri (6.07%), is 17% higher than in New Jersey.
Knowing the standard commission rate in your area will give you a good basis for your negotiations to ensure that both party’s requests are reasonable.
3. Shop Around for the Best Value
There are A LOT of real estate agents and brokerages out there to choose from. Some are completely rigid on price, whereas others are much more open to tailoring the fee and service structures to meet your specific needs and goals.
So, do your homework to find the best agent and service for you! We recommend interviewing at least 2 to 3 options to find the right fit for your goals.
4. Make Your Home Easier to Sell
If you’re willing to offer up some extra cash to make your agent’s job easier, invest in things that will make your house sell quicker.
For instance, you can agree to make recommended pre-listing repairs and improvements such as repainting, landscaping, cleaning the carpets, and so forth. If you want to go the extra mile, pay for a pre-listing inspection so that any previously unknown issues that could prolong or derail negotiations can be dealt with.
This will make your agent’s life a whole lot easier, and help you negotiate a lower commission fee with your realtor.
5. Create Value for the Agent
Typically, agents cover a multitude of upfront costs, such as professional photos and marketing expenses. Therefore, when negotiating rates, find ways you can help minimize those upfront costs or offer some type of value for your agent to sweeten the deal.
For instance, if you have a friend who is a professional photographer, ask them to take the images for the listing instead of the realtor.
Get creative and find a means through which you can add value to your agent before negotiating their rates!
6. Sell and Buy with the Same Agent
You represent a single paycheck for an agent, which gives you limited negotiating power. But when you agree to sell and buy upfront, you’re now a repeat customer This presents an additional paycheck to your agent.
Because the agent doesn’t have to invest in additional resources to pick up another client, they actually earn more money as a result.
Therefore, the agent might be willing to reduce their rate in order to secure both deals. Even though they are earning a lower commission on the home sale, they’ll be making more money overall collecting both transaction fees.
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All in all, negotiating realtor fees is not as hard as it seems. When you focus on the mutual benefit of both parties, you may have the leverage you need to score an awesome deal with your realtor.
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