Commission savings

C - Agency Discounts: Can you get discounts from typical agencies?

 Each agency has its own commission policy and encourages their agents to stick to it. However, the agents all know that a discounted commission is a tool they can use in order to secure a listing, but they do so only if they are asked or if they feel that the commission is a concern to you. 

Bottom line: It’s always better to have a discounted listing than no listing. 

“Real estate commissions are negotiable.” It’s true. But many consumers don’t even bother to ask the agent if they can get a lower rate. They assume the agent is offering them the standard rate, their best deal. Not true.

Why agents discount their commission:

Everyone has heard of 6 and 7 percent commissions. They assume that’s the going rate. They think rates are the same now as when their parents last sold a house.

But times have changed, including the prices of houses. With the same old commission rate, agents now get a much bigger commission. There is a lot of money in real estate commissions–in the US it has been around 60 billion dollars for each of the last few years.

Look at it this way: commissions represent a large chunk of change. From an agent's perspective, getting a listing is like getting a job. A listing provides the potential to make money.

Getting a discount:

Don't call up an agent and ask what commission they charge. How can agents offer a lower rate over the phone when their peers or clients could be within earshot? A face-to-face meeting will always net you your best deal.

Invite them over to your home for a listing presentation. When an agent gives you their rate, ask, “Is it negotiable?” They'll usually drop their rate at least a half percent immediately.

After this reduction, ask them what’s the lowest rate they’d take. This often results in a further drop.

The commission question:

If the agent asks if the commission rate is important to you, simply smile and say, “Yes.” Then wait for their reply. The first party to say something loses. The agent was expecting you to provide an opening to talk about the sale of your home as being the important issue. Stay on topic: the commission.

Many agents have a ready comeback when responding to your request for a discount. Check out these "trained" agent responses to a discount request.

Your agent becomes a "dual agent":

Obviously your listing agent will have a better than average chance of finding a buyer–thereby earning both sides of the commission (listing and selling). That's because their name and phone number will be on the for-sale sign, info box flyer, internet ad, newspaper ad, etc.

When an agent represents both the seller and the buyer in a transaction, he or she becomes a "dual agent" and takes more of a mediator role in the negotiations. (And here you thought the commission was paying for full professional guidance.) 

When listing your home, almost all agents will agree to charge a lesser commission (1 to 2% less) if this situation arises to "compensate" you for winding up with less than full representation. For an argument against this commission cut, you'll want to review "When your agent also represents the buyers", also available in this Commission Savings section.  

Some states, like Kansas, Florida and Colorado eliminated dual agency because of the potential conflict of interest.

List and buy using the same agent:

Most agencies will offer a nice discount (1-2%) if you agree to list with them and also buy your next house through them. Why not? They will be getting two commissions. This is an extremely common discount, but you may have to ask about it.

Top agent, higher commission:

Paying the going rate or even the highest rate doesn't guarantee that you’ll get first class service or even the best agent from an office. An agent from an office could be a 20 year veteran or a brand new rookie. And both would be quoting the same rate.

As consumers, we have become so conditioned to thinking that by paying more, we’re getting the best. Seasoned sellers have found out that you can have a low discounted rate and still have an excellent, experienced agent.

Agents work in a world of discounts:

All agents, even agents from traditional, “full service” companies work in an environment filled with discounting. Here's why discounts are so common in real estate, which will make it easier to inquire about a discount for your property:

• Agents get and receive referrals

Agents frequently agree to pay part of their commission in order to get customer referrals from other agents. An agent from California could advise an agent in Georgia about a buyer who is moving to Atlanta. Or that California agent may know of an Atlanta seller who is considering moving out of their home into a condo. One agent will refer buyer and seller prospects to another agent for a typical fee of from 25 to 30% of the commission.

• Relocation companies refer clients
  
  Large corporations hire “relocation companies” that specialize in helping their employees transfer from one city to another. This usually involves coordinating the sale of an employee’s home as well as their subsequent purchase of their next home.

The relocation firm then offers an  agent the opportunity to work with the employee being relocated. The relocation company receives their compensation by demanding from 30 to 40% of the commission from the agency who lists the home of the employee being transferred.

The relocation company also gets a similar cut of the commission from the agency that represents the employee when they buy in their destination city.

• Here’s the point

Referral fees have the same effect on lowering an agent’s income as does a discounted commission. If agents are willing to accept a discounted commission from an agent referral or from a relocation company, then why wouldn’t they be happy to work with you for a discounted commission?

The answer is that they would be very happy. The pie is just smaller after a cut has been taken out by a referral agent, a relocation company or by a savvy seller.

                          More commission, more effort?

Listing agents put forth about the same effort into selling your home with a reduced commission as they would if you went the other direction and offered them a higher than normal commission to "get it sold." This is the internet age. Agents can only do so much to get a property sold. 

Lower the commission later:

Here are two instances when the commission is lowered after the listing agreement has been signed.

• Making the deal work

During negotiating an offer, you and the buyers reach a solid impasse on the price. How far apart in dollars are you from getting this deal together? How much is the total commission amount? How much time is remaining in the listing agreement?

An agent knows that when the listing expires, you could switch to a different agency. Look the agent in the eyes and say, “We’re as low as we can go. If you and the agent for the buyers want to help by lowering your commissions, we could make this offer work.” Most agents will help out. It happens all the time.

This even works when the listing is relatively new. The agent knows that a quick sale will eliminate advertising expenses, open houses and the usual expenditures in time and energy. Plus, the agent can advertise that they sold the house in "2" days.

• Holding the deal together

Situations arise that bring unanticipated costs after the contract is agreed upon. The inspection could reveal a costly repair like a roof problem, the need for a home warranty, etc.

As you get closer to the closing, agents will almost always agree to a request for a commission reduction out of fear of losing the sale. The same logic used above in making the deal work could convince your agent or their office to help cover this unexpected cost in order to save the sale. Because of the large amount of commission involved, this is not uncommon.

Advantages for the agent:

During the agent interview process, if a candidate is reluctant to lower their commission, there are other agents. But before giving up on a particular agent, point out the intangible benefits of having you as a seller:

• His or her for-sale sign in the front yard will be seen by lots of people–it’s like free advertising for the agent.

• Your listing will provide additional opportunities for the agency to advertise locally and get the agent’s picture in the paper (along with the house, of course).

• You’ve studied our web site, helpinghomesellers.com, and have become highly familiar with the selling process. This will save the agent a lot of time, effort and grief.

• In addition, you have lots of local friends that you can’t wait to tell about your real estate agent. (That by itself should deserve an even lower commission).

                          Good information source

Consider contacting neighbors who are listed or who recently sold their home through an agent and ask them what the “going commission rate” is?

This could save you a lot of time in compiling your short list of agents to interview.