How to effectively negotiate real estate commission rates
What you don't know about negotiating realty commissions may cost you a lot.
Many consumers simply are not aware that real estate commission rates ARE negotiable. Two out of three sellers hire the first agent they contact and miss out on the huge savings they could acheive if they took the time to do a little homework and employ strong negotiating tactics.
Commission rates for real estate brokerage firms have traditionally averaged around 6% to 7% of the gross sales price of the property. However, the recent proliferation of discount and flat fee MLS by owner real estate firms has created a downward pressure on real estate commission rates and the national average stands at just above 5%. While 5% or 6% may not seem like a lot compared to your home's value, it usually represents a fairly large of portion of your home's equity - (Equity is the amount you get to keep after all of the expenses of the sale have been paid.)
Real Estate Commission
Rates By Location
To view negotiated favorable commission rates you could spend a lot of time interviewing various agents to see if any would be willing to negotiate their rates. Often these rates are set by the agents' broker, so they may not have the authority to negotiate the rate. But, before you meet with an agent, try to determine your home's market value and the average selling time or days on market for homes in your area so you'll have a good idea of how hard the agent is going to have to work to sell your home.
Consider these factors when attempting to negotiate rates:
- Do you have other properties to sell? If so you may be able to negotiate for a volume discount.
- Is your house in great condition favoring a quick sale ? The longer a property takes to sell, the most costly it is for the agent marketing the property.
- Are you in a buyer's or seller's market? In a seller's market house tend to sell faster and for more money.
- Does the agent possibly have a ready buyer in hand? An agent makes twice as much if they list and sell your home (without another agent's involvement).
- Does the broker offer a variable commission rate? This is an agreement whereby you pay a lower commission if the home is sold without another agent, say 5% if sold with a buyer agent and 3.5% if sold with no other agent involvement.
- Are you able to offer an assumable loan or other favorable financing terms? Favorable terms make your home more attractive to buyers and thereby easier to sell.
- Are you willing to do some of the work of marketing and selling your home? If so consider discussing a flat fee option or limited service rate.
Real estate commissions as a percentage of GNP are the lowest since 1982
All of these factors will determine the likelihood of and amount a real estate agent is willing to negotiate. Keep in mind that real estate agents are often not empowered to negotiate rates which are set by the company's broker-in-charge. Ask the agent to discuss your negotiation proposal with their broker. Let them know that you are interviewing other agents and will make a decision with commission rate being one of the determining factors of which firm you will select.
Alternative Brokerage Models
If you can't find an agent who will sell your home for a reduced commission, consider a transaction broker or a real estate firm that charges a flat fee to list your home in the Multiple Listing Service (MLS) - instead of a percentage of the selling price. Flat fee companies offer real estate services on an "a la carte basis" allowing you to choose the services you want instead of the traditional approach of bundling all of the services together. For example, if you just want marketing exposure, you can purchase a listing on the Mutliple Listing Service (MLS). Or, if you need help with writing a valid Purchase Agreement, you could purchase the assistance of a Real Estate Agent just for contract writing or negotiation.
Remember, a home is most people's largest investment. It just makes sense to preserve your home's equity and maximize the return on your investment (ROI). After mortgage payoff, the real estate commission is usually the biggest expense of the sale of a home. A little negotiation up front can save you thousands of dollars and greatly increase your ROI on your largest investment vehicle.