If you’re looking to save some money, here’s what you need to know about how commissions work, and how to agree on a rate that both you and your agent can feel good about.
In a real estate transaction, there’s always some level of negotiation. If you’re the seller, you face haggling not only with prospective buyers, but also with the person you’re working with to seal the deal: your real estate agent.
Thanks to a federal lawsuit that was recently settled, the way real estate commissions work will change in July 2024 (pending court approval). If you’re looking to save some money, here’s what you need to know about how commissions work, and how to agree on a rate that both you and your agent can feel good about.
A generation ago, real estate commission rates were typically around 6% of a home’s sale price. But the average real estate commission rate has gone down in recent years to just under 5% of a home’s sale price, according to Real Trends, a real estate research and consulting firm, and to Anywhere Real Estate, the parent of Century 21, Coldwell Banker and other brokerage brands.
Under the current system, the fee is typically paid by the seller at closing, and it’s customarily split down the middle between the seller’s agent and the buyer’s agent. (So, for a 5% commission, each agent would earn 2.5%.) On a $400,000 transaction, which is around the median sale price nationwide, the 5% fee amounts to $20,000.
Agents and brokerages can offer a variety of commission structures, though, with some marketing flat fees or other incentives. So there may be opportunity to negotiate the rate if you’re looking to save on the cost of selling your home.
“There are agents and brokerages that reduce, discount or coupon their services,” says Kevin Van Eck, an executive with @properties, a brokerage in Chicago. “Each agent, along with their brokerage, can determine where they set commissions based on the value and success created.”
Often, yes, there is room for bargaining. And as of July, there may be even more room. As a result of a lawsuit involving the National Association of Realtors (NAR) and several major brokerages, new commission rules will take effect that month that will mean sellers no longer have to cover the cost of the buyer’s agent’s fee, which may lead to more aggressive price competition among buyer’s-side agents. In addition, listing agents will no longer be permitted to state the buyer’s agent commission in the MLS (multiple listing service), as has been common practice.
Your success at negotiating often depends on an individual agent’s circumstances, says Dave Liniger, chairman and co-founder of RE/MAX Real Estate. “Some agents are dead-set,” he says. “Other agents need the business so bad they’ll readily negotiate.”
As you prepare to list your home for sale, you may want to meet with a few listing agents to find the right one for the job. Ask each agent about their commission rate and what exactly you’ll be getting for that price. Consider not only how the agent plans to market your home, but also their skill in pricing it, experience, resources and track record.
“It’s OK for a seller to ask about the commission, but the best time is after talking with the agent and understanding their experience, how they will create exposure for the home and the value they bring to the table,” says Van Eck.
Liniger suggests that sellers invite three to five listing agents to their homes to make their pitches. The competing proposals will let you see how much agents charge, and give you leverage to bargain for a better deal. “You don’t get if you don’t ask,” he says.
You might also consider weighing what you learn from full-service agents against the services of a discount broker. Just keep in mind that the discounter’s offerings may be limited compared to those of a traditional agent.
Once you understand exactly what you’re paying for, you will be in a better position to ask for a discount. Here are some tips:
You may be considering skipping the commission conversation entirely and selling your home yourself. If so, be aware: While an experienced house flipper might be skilled enough to list a home without an agent, for most homeowners, the for-sale-by-owner route can be more challenging, more costly and more time-consuming in the long run.
In any negotiation, both parties must be willing to give and take. Negotiating your agent’s commission can work in your favor, but an agent can walk away if they don’t necessarily need your business. Keep in mind, too, that it can make sense for sellers to pay more for additional services instead of negotiating the commission down, Bull says. These might include higher-end marketing, home staging or additional mailers, for instance. And if you’re not in a rush, consider waiting until after the July rule change to see how things shake out. Ultimately, it’s important to find an agent you can speak with openly about cost, and who you trust to do the best job to sell your home.
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