If you’re like most people, when it comes time to sell or buy a home, you just accept whatever commission rate your real estate agent suggests. 5-6% of the sale price? Sure, that sounds reasonable. After all, that’s the “standard” amount, right?
Well, let me let you in on a little secret: Real estate commissions are totally negotiable.
But it’s true – you absolutely can negotiate down the agent commission to save yourself thousands of dollars. You just have to know the right strategies and do a little preparation.
In this post, let’s have an honest chat about how real estate commissions work, what impacts negotiation, and how you can get the absolute best deal as both a home seller and a buyer. My goal is to help you feel confident and empowered when it comes time to negotiate.
Ready? Let’s do this.
Before we dive into the nitty gritty of negotiating, we need to first make sure you understand exactly what real estate commissions are and how they work. Knowledge is power, my friend!
In a typical transaction, the total commission is split between two agents – the listing agent (representing the seller) and the buyer’s agent (representing the buyer). Each agent usually receives around 2.5-3% of the total sales price of the home.
For example, on a $500K sale with a 6% total commission, the two agents would each get around $15K (3% of $500K is $15K).
This commission is taken out of the proceeds when the sale closes. So as the seller, you pay the full commission stated in the listing agreement, which gets split between the two agents. Make sense so far?
Now, you’ll often hear that the “standard” commission is 5-6% across the U.S. And while that’s the common starting point, commission rates actually vary quite a bit depending on factors like location and market conditions.
For instance, in hot markets with bidding wars, rates may be closer to 7%. In slower markets with more inventory, agents may offer commissions as low as 3-4% to attract sellers.
The price point of the home also impacts commissions. For luxury homes over $1M, rates often dip down to 2-3% since the dollar amounts are so high already.
Okay, that covers the basics of how real estate commissions work. Let’s talk about how you negotiate the best deal!
When prepping to negotiate your agent’s commission, there are some key points of leverage to keep in mind. I like to think of these as your negotiation superpowers!
Experience matters – Top agents with years of experience and 5-star reviews often command higher commissions. But newbie agents may accept lower rates to build their biz.
Use market conditions to your advantage – In seller’s markets with bidding wars, agents have more leverage for higher commissions. In buyer’s markets with excess inventory, you can negotiate lower.
Price point powers – For high-end luxury homes, rates around 2-3% are totally reasonable for agents. More room to negotiate!
Services = value – Top brokerages with amazing marketing and photography justify higher rates. Less impressive services? Ask for less!
See what I mean? As you prepare to negotiate, keep factors like experience, market conditions, price point, and services in mind. This will reveal your negotiation superpowers!
Alright, time for the good stuff! Here are my best tips and tricks for negotiating your listing agent’s commission down from the initial offer:
1. Research local commission rates – This helps you set expectations and know what’s considered “normal” in your market. Ask friends or search listings online to find the going rates near you.
2. Discuss commissions upfront – When interviewing listing agents, ask about commission rates right off the bat. Make it clear you expect negotiation.
3. Float a lower number first – When the time comes to formally negotiate, propose a commission that’s 0.5-1% lower than their initial offer. For experienced agents, 4-5% total instead of 5-6% is very reasonable.
4. Get creative with tiered rates – Suggest a tiered structure where commissions decrease at higher sales prices. Something like 5% on the first $500K, 4% on the next $500K, and 3% over $1M gives the agent incentive to sell for more.
5. Leverage lower workload – If it’s likely your home will sell quickly with minimal effort, use that as justification for a lower rate. But be truthful!
6. Seek competitive bids – Interview multiple agents and compare commission bids. But choose based on experience and value, not just lower rates.
7. Offer bonuses for exceeding price goals – Instead of negotiating the entire commission down, offer bonuses if the agent exceeds the expected sales price. Win win!
The best time to negotiate is when first signing the listing agreement, before you’re locked in. Don’t be shy to speak up!
As a buyer, you can also take steps to lower your real estate commission costs. Here are some savvy ideas:
1. Instruct your agent to negotiate – As your rep, your buyer’s agent should negotiate the lowest commission possible from the seller’s agent on your behalf. The seller pays the full commission split between agents.
2. Only agree to pay 2-2.5% – You don’t have to agree to the full 3% buyer’s agent commission. Negotiate this down or seek rebates after closing.
3. Get commission rebates – Many buyer’s agents will rebate 1% or more of their commission back to you after the transaction closes. Shop around for rebate offers!
4. Negotiate a flat fee – For higher priced homes, a flat fee may save you money compared to paying a percentage commission.
5. Represent yourself – In some states, buyers can represent themselves, allowing you to avoid the buyer’s agent commission altogether. But you lose guidance and expertise.
Even as a buyer, you have options to lower your costs! Get your agent working for you.
Whew, we covered a lot of ground! Here are the key tips to remember when negotiating real estate commissions:
– Do your research to set reasonable expectations
– Initiate commission negotiations upfront
– Use creative structures like tiered rates
– Seek competitive bids from multiple agents
– Leverage factors like market conditions in your favor
– Get rebates and negotiated flat fees as a buyer
See – you’ve totally got this! There’s no reason to leave thousands on the table by accepting the first commission you’re offered.
With the right approach, you can negotiate win-win deals with agents and save a ton. Now get out there and start negotiating! Wishing you the very best of luck.