You need a real estate agent if you are selling your home, but does that mean that you have to pay whatever fee the agent wants to charge? Only if you only plan to interview one agent for the job. The best strategy to get the lowest fee is to make your real estate agent compete for you. That means that you should open up the listing of your property to several potential real estate agents. Only when you find one who will work with you – on your terms – should you settle on an agent.
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The “Standard” Real Estate Commission
In most of the country, the typical real estate commission charged is 6% of the sales price. Or better put, that’s the commission rate that agents typically try to get. Some may even convince you that it’s 6% or no deal – they will only agree to sell your home if you concede to the 6% fee. It’s Realtors 101 – if they can pull it off.
But in reality, there is no standard real estate commission. In this day and time of discount brokers in just about every part of the economy, commission fees are almost always negotiable. And that’s almost always true when it comes to the real estate commission.
It may even be true that there are agents in your market area who will accept nothing less than 6%. And it may even be that the majority of their clients do end up paying that amount. More than anything that could be an indication that the agent is really good at sales. That is, he or she is able to consistently convince people that they need to pay 6% to sell their property.
If you come across such an agent, thank them for their time, and continue your search for an agent who is more flexible.
How to Make Real Estate Agents Take a Lower Commission
No matter how much an agent digs in and tries to hold the line on their commission, most of them will accept less than 6% for selling your home – and often a lot less.
Part of it is because there are discount brokers even in the real estate business. Some will agree to accept a 1.5% listing fee, with the provision that you will pay an additional 2.5% or 3% to the selling agent. That would make your total commission either 4% or 4.5%. Either will be better than the “standard” 6% fee.
There are also real estate services who will agree to list your property for either a flat fee or a small percentage fee. You will then have to pay an agreed-upon rate to a selling agent, should that agent bring a buyer to your property.
Those kinds of arrangements force other agents to lower their fee. They have to do that, just to be competitive.
Why Real Estate Agents Will Work for Less
No matter how much a real estate agent insists that they must get a 6% commission, most will still agree to work for less. It comes down to that saying half a loaf is better than none.
If an agent continually holds out for 6% on all transactions, he or she will lose a lot of business. The reality is that houses are selling all the time for less than 6%. All real estate agents and brokers know this, and they are not anxious to miss out on that business. The only way to get it is to cut their own fee. No, they don’t like to, and they will usually fight doing it. But in the end, most will relent.
The reason is simple. Like virtually everyone else out there trying to earn a living, real estate agents need to eat. To do that, they need to do business. And to do business, they need to be competitive with the lower price providers.
Let every agent you interview know that you are talking to other agents. That will force them to compete for your business, and that will get you the lowest commission rate.
But Be Careful Not to Press the Commission Reduction Too Far
Just as realtors may be anxious to get you to pay a full 6% fee, you have to be careful not to push too far in the opposite direction. If you do, it can hurt your chances to sell your home.
If you live in a heavily populated area, there are probably hundreds of homes for sale at any given moment. Most of those homes will be sold by real estate agents. It should go without saying that those agents will have a preference for selling the properties where they are likely to earn the biggest paycheck.
If you cut the real estate commission too low, real estate agents will be reluctant to even show your property to prospective buyers, let alone encourage them to make offers. They will instead focus on showcasing the properties where they are likely to get higher commissions.
For that reason, even as you negotiate to keep the listing fee on your property as low as possible, you should make sure that selling agents are well compensated.
Understanding the Two Parts of the Real Estate Commission
That means keeping the selling side of the commission in the 2.5% to 3% range. That will be high enough to encourage real estate agents to show your property.
This is when it’s important to realize that there are always two sides to the real estate commission – the listing broker fee and the selling broker fee.
The listing broker fee is the amount that you agree to pay the agent who lists your property on the multiple listing service. The selling broker fee is what you agree to pay an agent for selling your property.
Listing your property on the multiple listing service is a one-time event – the agent puts your property on the MLS, and it stays there until either the property is sold, or the listing expires. This is where you want to negotiate for the lowest fee possible. If you can get a flat fee, say $500, just to get your property listed, that would be a big win.
Selling your property is an ongoing process, and that’s why you don’t want to press too hard on lowering this part of the fee. It may take several agents many showings to find a buyer for your property. This is the side of the fee that you want to encourage. Since the fee will need to be large enough to attract selling agents, you will want to make sure that this part of the fee is generous enough to make that happen.
So when it comes to the real estate commission, you have a two-part mission. The first is to keep the listing agent fee as low as possible. The second is to make sure that the selling agent fee is high enough that agents will be encouraged to bring prospective buyers to your home. More prospects means greater likelihood of an offer and at a higher price.
It’s a balancing act, but if you can make your real estate agent compete for you, you can make it work – and save thousands of dollars in the process.