Tips to Negotiate Realtor Commission and Save on Selling Costs

Selling a home is a significant financial transaction, often involving a series of negotiations both with buyers and with the real estate agent you hire. One of the most important aspects of this negotiation is the realtor commission, which can eat into your overall profits if not carefully managed. By understanding how commissions work, exploring various negotiation strategies, and considering alternatives, you can save a substantial amount on selling costs. Here’s a guide to help you negotiate realtor commissions effectively and maximize your savings when selling your home.

Understanding Realtor Commission Structure

Real estate commissions are typically calculated as a percentage of the home’s sale price and are paid at the closing of the sale. In most cases, the total commission ranges from 5% to 6% of the sale price, which is split between the listing agent and the buyer’s agent. For example, on a $500,000 home, this could mean a commission of $25,000 to $30,000, split between the agents involved in the transaction.

Recent Changes to Commission Structures: The landscape of real estate commissions has shifted in recent years. A landmark decision by the National Association of Realtors (NAR) and other real estate organizations has impacted how commissions are handled. Previously, sellers paid the commission for both the listing and buyer’s agents. However, recent changes now allow more flexibility, with sellers typically paying for their own agent’s commission and buyers potentially responsible for covering their agent’s fee.

Understanding this commission structure is crucial, as it helps you identify potential negotiation points with your agent. For example, if you know the commission structure for your area, you’re in a better position to make informed decisions when negotiating rates.

Are Realtor Commissions Negotiable?

Yes, realtor commissions are negotiable, and this is an often underutilized opportunity. However, not all sellers realize they can negotiate, and many don’t bring it up during their initial discussions with an agent. According to recent data, only about 22% of home sellers attempt to negotiate their agent’s commission, with a small percentage of agents being willing to adjust their rates.

Understanding that commissions are not set in stone gives sellers the opportunity to lower costs, but it’s essential to approach the conversation strategically. Don’t just ask for a lower rate; understand what’s included in that rate and what services might be reduced or omitted if the commission is lowered. A skilled agent will be able to explain what they’re offering for that commission and negotiate terms that work for both parties.

Key Strategies to Negotiate Lower Commission Rates

Negotiating realtor commissions effectively requires a combination of research, timing, and offering something valuable in return. Here are several key strategies to help you lower your realtor fees and save money:

Research and Compare Local Agents

Before beginning negotiations, it’s essential to understand the average commission rates in your local market. By researching and comparing rates among several agents, you’ll know what’s reasonable and what’s considered too high. Local factors, such as the housing market in your area, can also influence the rates agents charge. Interview at least three agents to understand what services they offer and how they charge.

It’s also important to assess each agent’s experience. The more experience an agent has, the more likely they are to stand firm on their commission rate. However, experienced agents also tend to have a proven track record of securing higher sale prices, so you may decide that the higher commission is worth the added value.

Leverage Multiple Transactions

If you’re planning to buy another home, using the same agent for both the sale and the purchase of your new home could provide you with additional negotiating leverage. Many agents are willing to reduce their commission in exchange for securing both transactions, as it guarantees them more business.

Real estate investors can also use volume to negotiate lower rates. If you’re an investor with multiple properties to sell, agents may be willing to offer a reduced commission in exchange for the volume of sales you’re likely to bring them. This gives you bargaining power to secure a lower rate and potentially save thousands on your sale.

Offer a Higher Buyer’s Commission

Although it may seem counterintuitive, offering a higher buyer’s agent commission can be an effective strategy to incentivize the buyer’s agent to show your property. This can be particularly useful in a competitive market or if your property is in a desirable location.

By increasing the buyer’s agent’s commission, you make your home more attractive to buyers’ agents, which could lead to a faster sale. You can then negotiate with your listing agent to lower their commission rate or adjust other terms of the agreement.

Negotiate Additional Costs or Fees

Besides the commission itself, real estate agents often charge additional fees for services like transaction coordination or administrative costs. These transaction fees can sometimes add up to a few hundred dollars, and they may be negotiable.

If your agent is firm on their commission, ask about the possibility of lowering or waiving these additional fees. It’s a small but effective way to save money, especially when you’re already negotiating the main commission.

How Market Conditions Affect Commission Negotiations

The state of the market can significantly influence how flexible real estate agents are with their commission rates. In a hot seller’s market, where homes sell quickly and for high prices, agents may be less willing to negotiate commissions. This is because demand is high, and they may be confident that their commission is justified by the volume of business.

However, in a buyer’s market or when inventory is high, agents may be more open to negotiating their fees in order to secure business. Homes in less desirable areas or those that need extensive repairs may also provide you with more room to negotiate lower commission rates.

Understanding these market dynamics will help you identify the best time to negotiate. If you’re selling in a competitive market, consider focusing your efforts on negotiating other aspects of the deal, such as transaction fees or a reduced buyer’s agent commission.

Using Discount Brokers and FSBO (For Sale By Owner)

Discount Brokers

Discount brokers, like Clever Real Estate and Redfin, offer reduced commission rates compared to traditional agents. For example, these brokers might charge a 1.5% listing fee, compared to the typical 2.5 to 3%. This can result in substantial savings, especially on higher value homes.

While discount brokers offer full service options, it’s important to understand that some may provide fewer services or rely more heavily on technology to streamline the selling process. If you value hands on guidance and expert negotiation, you may want to weigh these factors before deciding on a discount broker.

FSBO (For Sale By Owner)

Selling your home without an agent, also known as FSBO (For Sale By Owner), is another option to save on commission fees. By eliminating the listing agent’s fee, you could save 2.5 to 3% of your home’s sale price. However, selling a home on your own requires more effort and expertise. You’ll be responsible for marketing the property, negotiating with buyers, handling legal documents, and more.

For FSBO sellers, using a flat fee MLS listing service can help you gain exposure while still avoiding the full commission costs. These services typically cost $100 to $500, which is much cheaper than paying a full listing agent’s commission.

While FSBO can save money, keep in mind that homes sold by top agents often fetch higher sale prices than those sold privately. Weigh the savings on commissions against the potential loss in sale price.

Common Mistakes to Avoid When Negotiating Commissions

When negotiating real estate commissions, there are some common mistakes you should avoid to ensure a positive outcome:

• Undervaluing Agent Expertise: Never negotiate so aggressively that you undervalue the expertise an experienced agent brings. An agent who is willing to work for an unreasonably low commission may not have the skills to maximize your sale price.

• Cutting Essential Services: Don’t offer to eliminate essential services or do tasks yourself that the agent typically handles. Agents have access to professional tools, networks, and skills that can help sell your home for a higher price.

• Over Negotiating: While negotiating is essential, over negotiating may lead to losing a good agent who could provide valuable services. Understand your BATNA (Best Alternative to a Negotiated Agreement) and know when to walk away if the terms don’t meet your needs.

Final Thoughts on Realtor Commission Negotiation

Negotiating realtor commissions doesn’t have to mean sacrificing service quality. By using the strategies outlined above, you can lower your selling costs without compromising on the expertise and service you need to sell your home effectively. Whether you choose to negotiate a lower rate, use a discount broker, or even try selling your home yourself, the key is to do your research, understand market conditions, and approach the negotiation process strategically.

Ultimately, negotiating commissions can be a win win situation. You save money, and the agent is still compensated fairly for their efforts. Just make sure to choose an agent who aligns with your goals and can help you achieve the best possible outcome in your home sale.