Jeff Ostrowski | (TNS) Bankrate.com
In a real estate deal, there’s always some level of discussion. If you’re the seller, you face negotiations not only with potential buyers, but also with the person you’re partnering with to finalize the deal: your real estate agent.
Thanks to a federal lawsuit that was recently settled, the way real estate fees operate will change in July 2024 (pending court approval). If you’re looking to save some money, here’s what you need to know about how fees work, and how to agree on a rate that both you and your agent can feel good about.
How real estate fees work, and who pays for it
A generation ago, real estate fee rates were typically around 6% of a home’s sale price. But the average real estate fee rate has decreased in recent years to just under 5% of a home’s sale price, according to Real Trends, a real estate research and consulting firm, and to Anywhere Real Estate, the parent of Century 21, Coldwell Banker and other brokerage brands.
Under the current system, the cost is typically paid by the seller at closing, and it’s traditionally split down the middle between the seller’s agent and the buyer’s agent. (So, for a 5% fee, each agent would earn 2.5%.) On a $400,000 transaction, which is around the median sale price nationwide, the 5% fee amounts to $20,000.
Agents and brokerages can offer a variety of fee structures, though, with some promoting flat fees or other incentives. So there may be opportunity to discuss the rate if you’re looking to save on the cost of selling your home.
“There are agents and brokerages that reduce, discount or coupon their services,” says Kevin Van Eck, an executive with @properties, a brokerage in Chicago. “Each agent, along with their brokerage, can determine where they set fees based on the value and success created.”
Can you discuss Realtor charges?
Often, yes, there is room for bargaining. And as of July, there may be even more room. As a result of a lawsuit involving the National Association of Realtors (NAR) and several major brokerages, new fee rules will take effect that month that will mean sellers no longer have to cover the cost of the buyer’s agent’s fee, which may lead to more aggressive price competition among buyer’s-side agents. In addition, listing agents will no longer be permitted to state the buyer’s agent fee in the MLS (multiple listing service), as has been common practice.
Your success at discussing often depends on an individual agent’s circumstances, says Dave Liniger, chairman and co-founder of RE/MAX Real Estate. “Some agents are dead-set,” he says. “Other agents need the business so bad they’ll readily negotiate.”
As you prepare to list your home for sale, you may want to meet with a few listing agents to find the right one for the job. Ask each agent about their fee rate and what exactly you’ll be getting for that price. Consider not only how the agent plans to market your home, but also their skill in pricing it, experience, resources and track record.
Van Eck suggests that it's fine for a seller to inquire about the commission, but the best time is after speaking with the agent, understanding their experience, how they will generate exposure for the home, and the value they bring to the table.
Liniger recommends that sellers have three to five listing agents visit their homes to present their proposals. Comparing the proposals will allow you to see how much agents charge and give you leverage to negotiate for a better deal. “You don’t get if you don’t ask,” he says.
You may also want to consider comparing what you learn from full-service agents with the services of a discount broker. Just keep in mind that the offerings of the discounter may be limited compared to those of a traditional agent.
How to negotiate real estate commissions
Once you fully understand what you’re paying for, you will be in a better position to request a discount. Here are some tips:
- If you’re able to offer the agent more than one listing opportunity, that might be a compelling argument for a reduced commission. “If [you’re] a real estate investor who is looking to offload several properties, I would definitely talk about the commission,” says Dana Bull, an agent with Compass in the Boston area. Most agents welcome repeat business, she says.
- If you don’t have another listing opportunity of your own to offer, try leveraging your ability to recommend the agent to others in your neighborhood or network. This might be especially impactful if you know they are looking to build their business. “I can’t just slash my commission, but I might be willing to give a slight discount if the client offered some sort of other strategy to get more business after the sale,” Bull says.
- If you have a home in a sought-after area, or a buyer already interested, or an unusually high sale price, your agent may not need to do as much to earn their fee. If neither party can foresee the need for additional services — “if an agent is coming in to basically just do some hand-holding, keeping the transaction on schedule and assisting with paperwork,” Bull says — that might be another good reason to propose a slightly lower rate.
- If you plan to buy a new home while selling your current one, use that in your favor. Liniger says an agent who can represent you on both the sale and the subsequent purchase will likely be willing to cut their fee.
You may be considering skipping the commission conversation entirely and selling your home yourself. If so, be aware: While an experienced house flipper might be skilled enough to list a home without an agent, for most homeowners, the for-sale-by-owner route can be more challenging, more costly and more time-consuming in the long run.
Bottom line
In any negotiation, both parties must be willing to give and take. Negotiating your agent’s commission can work in your favor, but an agent can walk away if they don’t necessarily need your business. Keep in mind, too, that it can make sense for sellers to pay more for additional services instead of negotiating the commission down, Bull says. These might include higher-end marketing, home staging, or additional mailers, for instance. And if you’re not in a rush, consider waiting until after the July rule change to see how things shake out. Ultimately, it’s important to find an agent you can speak with openly about cost, and who you trust to do the best job to sell your home.
(Go to Bankrate's website at bankrate.com.)
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