Real Estate Agent Commissions: How Much Should You Pay?

Can sellers negotiate how much commission they pay real estate agents? Surprise: They can!


Fact: Real estate brokers’ payment rates are not fixed in any state and are ALWAYS 100% negotiable.

When you decide to sell your house or office, you are like most people who will want to hire — or at least reflect hiring — a real estate broker to supervise the process.

Surprisingly, many people think that real estate brokerage royalty rates are “set” in their state, and they have to pay a special rate of the sales price to the agent to get their services. But it is not the matter, and in fact, you can spend whatever you and the agent accept.

What is a reasonable outlay to pay for real

estate commission?

“Fair” is whatever you and the agent decide, and just as you are not under any obligation to pay more than you want to, the agent is not under any obligation to do business with you if they are not going to earn what they want.
You will probably find that most agents will want to get a commission rate somewhere between 4 per cent and 7 per cent, depending on your particular area. While you may think that this is too much, keep in mind the following:

• The agent is not getting the entire amount. They earn about 37.5 per cent of the total, on average (this also varies by geographic area), because the buyer’s agent’s company usually gets half of the entire amount. Of the remaining half, the listing agent’s company gets about 25 per cent of that or more.

• If the sale goes smoothly (and real estate transactions rarely do), the agent may not put a tremendous amount of time and effort into the process. Still, if complications arise (there usually are some), the agent may put in a great deal of time and energy, including many evenings and weekends.

• The agent has no guarantee they will get paid, and if you change your mind halfway through and decide not to sell, the agent may have invested a lot of time and energy for nothing.

• The agent is likely on straight commission and must pay for all business costs (i.e., gas, cell phone, signs, insurance, etc.) out of their pocket.

• While understanding the listing side pays for marketing the home and facilitating the showings and feedback process; the listing agent also plays a vital role in keeping the buyer and seller at the negotiation table. For example, A buyer offered an initial price of $15,000 less than the list price. The seller countered at $4,000 under the list, and the buyer responded that they had offered their maximum amount and there would be no counter. The seller was offended, and the talks were off. Two weeks later, the listing agent convinced the seller to counter again and invite the buyer to the table to see if he would be willing to come up from his initial offer. He did, and eventually, the deal was closed, and everyone was happy. Ultimately, the listing agent recognized that some amount between the bid and the counter was reasonable and successfully coached the seller to see the benefit of dealing with this particular buyer.

• You might consider an incentive-based compensation for the agent.

So, suppose your house will not sell for very much and will probably not be an “easy” sale for whatever reason when you do the calculations. In that case, you may find that agent doing a lot of work for very little compensation.
However, if your house is worth half a million dollars or more and homes are flying off the market, then asking for a 1-per cent or 2-per cent reduction of the agent’s requested rate might be very fair for both of you.

Q. How is the commission divided between

the listing agent’s company and the buyer’s

is the agent the company?

Let’s say you agree to pay 6 per cent to the agent you are going to hire. The assumption is that 3 per cent of this amount is for the buyer’s agent’s company that brings the successful buyer to the table.

The question you should ask is, why do you have to pay 3 per cent to the buyer’s agent’s company? Can’t the buyer pay that themselves? Then, you could spend 3 per cent or thereabouts on the listing agent, and you would save yourself a lot of money, right.

Well, here’s how it works:

Most buyers use a buyer’s agent to help them in the home buying process. They could pay their agent themselves, but then they would probably expect about the same amount they are paying to be discounted from the price of your home.
In other words, consumers understand that real estate commissions are built into the price of the home. Even though you as the seller are paying the entire commission, you will probably net about the same if you only delivered the listing agent.
The problem in most states is that the contracts used are written by lawyers paid for by the real estate associations, making it difficult to benefit from not having a licensed agent during a purchase.


Q. Could you offer less than half of the total

commission to the buyer’s agent?


How about offering them less than half (3 per cent, in our example) say 2 per cent? Yes, you can.

But there will be some telling you that if you offer less than the “going rate” to buyer’s agents, they won’t show your home. But in general, this isn’t true.

What buyer’s agents want more than anything is to find their buyer a home they will like, get the sale done, make a reasonable commission, and move on to the next client. What matters most is whether the price of the home and its condition are favourable to buyers.

Q. What about “discount” and flat fee MLS

companies?

You could use a “discount” or flat fee MLS company instead of a “traditional” company (actually, since commissions are not regulated, there is no such thing as a discount company).
But unless you are willing to do a lot of work yourself, the extra that you pay the listing agent over the flat fee company may be worth it — and you may even get more money by having a dedicated agent to negotiate for you at all times.
Selling via flat fee MLS is increasing in slower markets. Many resorts use this alternative as a selling method being the most economical and flexible way to sell.


Recommendations for dealing with the real estate commission:

• If your home is not worth very much or it’s not in a great market for sellers, pay the “going rate” after shopping a few prominent real estate agents. You will need all the help you can get, and the agents will not be making a ton of money for the time they put in.

• If your home is worth a lot of it’s in a hot seller’s market, tell the agent that you think it is fair to pay them slightly less of their side and somewhat less of the buyer’s agent’s side. For example, instead of 3 per cent to each side, pay 2.5 per cent to each side.

• Make sure the agent will do the following:

-Put your home in the local MLS;

-Add as many high-quality photos as possible (make sure they choose the best-looking image for the “primary” MLS photo)

-Put an attractive “For Sale” sign out front;

-Put a continuous supply of flyers in a flyer box; put a lockbox on the door;

-Offer whatever amount you have authorized them to offer to buyer’s agents in the MLS;

-Guide you well in preparing and staging your home.

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