How To Negotiate Real Estate Commission Fee

 

Yes, you can negotiate real estate agent commission fees. Unfortunately, many home sellers do a bad job at negotiating real estate commission fees when hiring a Realtor®.

I’m a Realtor® located in Valparaiso, Indiana here to help with negotiating commission rates with your agent. This post will help you better understand real estate commission fees and why you should negotiate for a lower fee. I will also give you 10 ways to improve your chances of successfully negotiating real estate fees. After reading this post you will be more prepared and comfortable with negotiating real estate commission when selling your home.

What Is Real Estate Commission?

A real estate commission is a fee charged by a real estate agent to sell a property. Traditionally, the seller of the property hires a real estate agent to sell the property. That agent asks the seller for a fee. The agent then offers a portion of the fee to any agent who represents a buyer who purchases the property.

On the other hand, sometimes a seller does not have a real estate agent. An example of this is a for sale by owner, also known as a FSBO. A buyer may decide to hire a real estate agent to help the buyer complete the purchase. In this circumstance the buyer is likely paying the agent he or she has hired.

Elements Of A Real Estate Commission Fee

There are two parts to a real estate commission. Well, sort of at least. Your listing agent is likely to share a portion of the fee in order to attract the attention of agents representing buyers.  Let me explain.

The Listing Commission

You’ve decided to sell your home and sign a listing agreement with an agent. The agent will offer to provide listing services, marketing, and work the transaction for a fee. Usually, the fee is a percentage of the sale price. For this example, let’s say 6%. The listing is the total real estate commission fee.

Buyer’s Agent Commission

Your listing agent is connected to all of the other real estate agents in your region usually through a real estate association or multiple listing service (MLS). Your listing agent knows those other agents have buyers. And your agent (and you) want to entice those buyers to come view your home. Therefore, your listing agent will offer a portion of the real estate commission fee to any agent representing a buyer.

Inside the real estate industry this is referred to as either the cooperating broker commission or more commonly the buyer’s agent commission.  The latter is often abbreviated as BAC.

Are Realtor® Fees Negotiable?

Consumers frequently ask are real estate commissions negotiable. Psst…you bet they are! Yes, Realtors® fees are absolutely, 100% negotiable.

There is no law or regulation which states real estate agents must charge a set fee. Consumers benefit from variable fees and competition. The concerted establishment of a fee rate amongst competing real estate agents or brokerages is a violation of the U.S. antitrust laws. Therefore, real estate commission fees are negotiable.

The real estate commission fee is determined by the real estate agent or the agent’s brokerage. Some real estate agents and real estate broker companies do not negotiate on their fee. There is no requirement that a real estate agent or brokerage company must lower their fee simply because you asked them for a lower fee.

Why You Should Negotiate Real Estate Commission

Home sellers who negotiate for a lower real estate commission fee will save money by lowering the transaction costs of selling their home. For example, a 6% real estate commission fee on a $300,000 home sale equals $18,000. However, a 4% real estate commission fee on the same $300,000 home sale equals just $12,000. This is a $6,000 reduction in transaction costs just by reducing the commission from 6% to 4%. Also, you may find it easier than you think to get a lower commission rate.

Most real estate agents will consider reducing their real estate commission fee if it means they will lose the listing. Don’t be afraid to negotiate with your real estate agent.  This is because real estate is a highly competitive profession. Often there are too many Realtors® to serve too few listings. Therefore, to remain productive some agents will commonly compete by reducing the fee they charge.

Reasons Real Estate Agents Might Not Want To Negotiate

There are many reasons some real estate agents will not negotiate with home sellers seeking a lower real estate commission fee. First, the real estate agent may not need your business. High quality agents are busy and have lots of customers. An agent will not be too interested in helping a client sell a $400,000 home at a 3.5% commission if she has other clients ready to sell who will pay the agent’s usual fee of 5% or 6%.

Secondly, your home might be harder to sell. Maybe your home is in poor repair for the price you are asking. If the agent believes your home will take more time and marketing to sell he or she is going to be less likely to negotiate with you to work for a lower commission fee rate.

Lastly, the real estate agent may not want to lower the commission fee because of the home seller. Some home sellers appear easy to work with and others seem difficult. A real estate agent is going to be reluctant to reduce the real estate commission fee if the agent believes the client will be a drain on his or her time, energy, or enthusiasm for selling the property. Just like you may be interviewing real estate agents, those agents, if they’re any good at least, are interviewing you, too.

Home sellers should remember a real estate agent is running a business. The agent is going to commit his or her time, money, and energy to getting your home sold at a price and terms acceptable to you. The agent is usually paid nothing unless the home sells. Therefore, some agents will be hesitant to and even wary of home sellers coming out of the gate asking for a lower real estate commission fee.

Top 10 Ways To Negotiate Commission For Real Estate

These are the things you should be doing to successfully negotiate for a lower real estate fee.

1. Make Your Home Easy To Sell

A real estate agent will be more open to negotiating the real estate commission he or she thinks the home will be easy to sell. Clean, well-maintained homes free of clutter are easier to sell. Take some steps to get your home market ready before inviting Realtors® into your home.

2. Set The Trap Of Commitment

Timing your negotiations about the commission fee can help you get a lower rate. Do not try to negotiate the commission fee during interviews with agents. However, during the interviews subtly let each agent know you are interviewing others and when you intend to make a decision.

Once you decide which real estate agent you want to use, contact the agent. Simply let the agent know you want to use him or her as they stood out above the other agents who were interviewed. Inform the agent you are ready to commit to him or her and ready to sign a listing agreement today except for the fee. This applies pressure to the agent.  Now, you’ve got the agent salivating. Let the negotiations begin!

3. Make The Realtor’s® Job Easier

Clients who are come off as easier to work for are more likely to get a low commission rate. Ask your real estate agent what you can do to make their job easier. Encourage the Realtor® to not hold back. Show the real estate agent you want to cooperate with the process and are enthusiastic about getting your home sold.

4. Commit To Buying A Home With Your Listing Agent

Real estate agents make money when they help a client buy a home, too. Committing to using your listing agent as your buyer’s agent when you are ready to buy a home can help you successfully negotiate for a lower real estate commission fee.

5. Let Your Listing Be A Lead Generator

Giving your real estate agent the opportunity to do an open house can help you negotiate for a lower real estate commission fee. An open house is an opportunity for your real estate agent to meet new buyers in your local area and generate leads. Your agent may want to do an open house because he or she believes your home would get great attendance at an open house.

6. Don’t Be Greedy

If you are negotiating for a lower real estate commission fee do not ask the real estate agent for expensive, over the top marketing materials. This can include things like drone photography, elaborate videography and video editing, or multiple page full-color brochures to advertise the home. Instead, let the real estate agent focus on selling the home using the tools and strategies he or she traditionally uses.

7. Give Your Agent More Business

When you ask the agent for a lower real estate commission fee let the agent know you will provide the agent with referrals. Acquiring new business is costly and takes a lot of time. If you can illustrate you will be a recurring source of referrals your real estate agent will be much more willing to negotiate for a lower real estate commission fee.

8. Actually Negotiate

The real estate agent already provided a fee rate. Now, it is your turn. That is negotiating. When you ask the Realtor® for a lower fee let him or her know how much lower. Do this by stating the rate at which you would hire the real estate agent with whom you are negotiating.  State you would commit today at a specific fee.

9. Seasonality Matters

Real estate agents will be more engaged in negotiating the commission fee when the real estate market is slow.  Home sellers are more likely to successfully negotiate a lower real estate commission fee between mid-November and mid-February.

10. Tell Your Agent To Save On The BAC

Another effective method to use when negotiating real estate commission is to tell your agent to reduce the BAC. Your real estate agent will likely promote your listing to other agents. These are other agents representing buyers. To entice those other agents to bring their buyers your agent will offer a portion of the commission you agreed on to those agents. Tell your agent to sharpen the pencil and reduce the BAC to the lowest rate possible to still entice agents to show the property.

Conclusion

By now you should have a better understanding of how to negotiate real estate commission fee. Asking for a lower real estate commission fee is something home sellers should be doing. Don’t let negotiating realtor fees be intimidating. Use the strategies included in this post.

A real estate commission is the rate charged by a real estate agent to sell a seller’s home. It is charged to the seller who has hired the real estate agent and paid when the transaction closes. A real estate agent may share a portion of the real estate commission fee with any cooperating agent who brings a buyer. This is often referred to as the cooperating broker commission or the buyer’s agent commission (BAC).

A Realtor’s® fee is negotiable. However, some real estate agents and real estate brokerages will not negotiate on their fee rate, and they do not have to do so, either. Home sellers should try to negotiate for a lower fee. A seller who gets a lower real estate commission fee will save money by lowering the transaction costs. Some agents will be reluctant to negotiate the fee because it affects their bottom line.

There are methods sellers can use to increase their chances of successfully getting a lower real estate commission fee. These include having a home which is easy to sell, appearing you are easy to work with, you being motivated to get started and commit to selling the home, and offering the real estate agent other opportunities such as referrals or the opportunity to do an open house at your home.