Negotiating agent commissions:
Agents know that a discounted real estate commission is a negotiating tool they can use in order to secure a listing. The bottom line is that it’s always better to have a discounted listing than no listing.
“Real estate commissions are negotiable.” It’s true. But many consumers assume the agent is offering them the standard rate, their best deal. Not true.
Why agents discount their commission:
Everyone assumes that 6 and 7 percent commissions are the going rate just like when their parents last sold a house.
With the same old rate, agents now get a much bigger commission because houses cost so much more. There is a lot of money in real estate commissions– in the US it has been around 40 to 60 billion dollars each year since 2000.
Getting a discount:
Don't call an agent and ask what 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 the best deal.
Invite them to your home. 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.” Wait for their reply. The first party to say something loses.
List and buy using the same agent:
Most agencies offer a 1/2% discount 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. Both will quote 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 lower, discounted rate and still have an excellent, experienced agent.
Agents value their own time:
Many agents will also negotiate a lower rate if the sellers agree to help out. Agents try to avoid spending an afternoon doing an open house. In addition to spending two to three hours at their client’s home, time is taken by dressing up, creating brochures, driving to the house, erecting signs, arriving early to turn on lights, staying to close down the premises, removing the signs plus the drive back home.
More free time can be very appealing to your agent or they may be pressured by several sellers who want an open house on the same day.
Offer to do all your own open houses for a commission reduction (1/2 % ?). Sweeten the proposal by committing to submit the prospects’ sign-in sheets to your agent along with your comments about the attendees. This will give the agent some great leads. If your agent can turn one of these buyer leads into buying your home, then the commission could be reduced even more!
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. Refer a prospect to another agent and a typical fee is 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 includes coordinating the sale of an employee’s home as well as their subsequent purchase of their next home.
The relocation firm offers an agent the opportunity to work with the employee being relocated. The relocation company receives from 30 to 40% of the commission from the agency who lists the home of the employee. They also get a similar cut of the commission from the agency representing the employee in their destination city.
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." Agents can only do so much to get a property sold.
Lower the commission after being listed:
Here, the commission is lowered after the listing agreement has been signed. This is more easily justified if the agent has not provided you with a discounted commission and no referral company is involved.
During negotiating an offer, you and the buyers reach a solid impasse on the price. How far apart in dollars are you? How much is the total commission amount? How much time is remaining in the listing agreement?
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.”
This even works when the listing is 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.
Unanticipated costs arise after the contract is agreed upon. The inspection could reveal a costly repair, the need for a home warranty, etc.
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, 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:
- The sign in the yard will be seen by lots of people–it’s like free advertising for the agent.
- Your listing will provide additional opportunities 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.
- Agents love referrals and you have lots of friends you want to tell about your agent.
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?
List, but still sell by-owner
The following are not discount approaches but options some owners would take in order to save the commission.
When selling by-owner, you'll show your home to a number of prospective buyers. Later, if you list your property, have these prospects excluded from the listing agreement. This means that you can avoid paying a commission if one of these prospects buy your home.
Limit the exception period to a month. Your list should only contain a few good prospects.
Get listed and sell by-owner:
When listing with an agency, you'll be signing a listing agreement that is an "Exclusive Right To Sell." This traditional agreement gives them the exclusive right to be your listing agent and receive a commission for doing so. But agencies also offer a listing agreement called an “Exclusive Agency Agreement.” It allows you to continue selling on your own and also be listed with that agency. This way you will be listed on the MLS and possibly the national Realtor web site. This gives you the best of both worlds: real estate agents will help to sell your home, plus you can continue to advertise and sell on your own. Good luck on finding an agent who'll go along with this.
Agents are reluctant to show your home if you also display a by-owner sign. They know that their buyers will see the real estate agency sign along with your sign. They will spread the word among their fellow agents. If you want to appeal to agents, have only the agency sign posted and do not have a by-owner sign. Concentrate your own marketing efforts on classified ads and internet sites such as those on the Seller_Resource_pages.
More on COMMISSION SAVINGS