Negotiating Lower Commission Rates

One of the most common concerns among home sellers is the real estate commission that must come out of their profit when selling their home. If you find yourself wondering whether you are paying a fair commission rate when it comes to listing your home it can be advantageous to learn the basics regarding real estate commissions as well as how to negotiate a lower fee.

First, it is important to understand that real estate agents are paid according to the commission they earn when they sell your home. Generally, there is no salary; only the commission on that sale. Of course, the entire commission does not go toward the agent who sells your home. The commission is split between the agent or agents involved in the sale and the broker or brokers. Naturally, an agent who is a top producer will earn a higher split than an agent who is just entering the business or who does not bring in many sales. To understand the process a little further, consider the following example:

Let’s say your home sells for $150,000. You have a listing agreement with a 7% commission. On that $100,000 sale, the total commission comes out to $7,000. Of that $7,000, 4% is paid to the listing broker and 3% is paid to the selling broker. Your listing agent will not receive all of that $4,000; however. About 50% will go to the broker and 50% to the listing agent. Out of the $2,000 that goes to the listing agent; however, overhead expenses must be covered in addition to social security and income taxes. So, as you can see, while it appears at first glance that the agent may be skating away with quite a bit of your profit, in the end, they are really only bringing in $1,000 or perhaps even less. If the sell of your home is the only sale they make that month, your listing agent is bringing home just barely above minimum wage, assuming a regular 40-hour work week.

Now, all of that is not to say that real estate commissions are not negotiable. While there may be certain local standards regarding real estate commissions, they are always up for negotiation. In order to increase your chances of receiving a discount; however, it is important that you bring something to the table. For example, you might ask the agent if he or she would be willing to negotiate a lower rate if they handle not only the sale of your current home but the purchase of your next home as well. You might also be able to negotiate a discount on your real estate commission if you offer to send referrals to the agent.

Things may be slightly different in the event there is a dual agency involved and the agent represents both you and the buyer. In this case, the agent would receive a commission on both sides of the transaction. With this type of situation you may also be able to negotiate a lower commission when you sign the listing agreement in the event the agent ends up handling both sides of the transaction.

It is important to keep in mind that while negotiating a lower real estate commission could save you some money when your home sells, there could also be negative repercussions. For example, the agent might not be as motivate to sell your home as quickly as other homes on which they stand to earn a higher commission.

Finally, don’t be afraid to compare notes regarding commission rates when you are shopping around for a real estate agent. If you find that one agent is offering a lower rate you might be able to use that to negotiate a lower rate with the agent you prefer. Real estate agencies respond to competition just like everyone else.