Why You Should Negotiate Your Hot Market Real Estate Agent Commission
With the real estate market now overheated, some homes are selling in a matter of days, with cash bids well above asking prices. However, this means – if you are looking to sell and think your home will sell quickly – that you are more likely to negotiate a lower commission with your real estate agent. Some agents may refuse to cut commissions, but it doesn’t hurt to ask, especially when the seller’s market is working in your favor. Here’s what you need to know.
How do commissions work?
In a typical home sale, the seller pays a commission to both the buyer and the seller’s agent using the proceeds from the sale. According to Real Trends , research and consulting firm Real Trends , the average total discount was 6% off the selling price, although it has dropped to just under 5% in recent years.
For a $ 500,000 home, that 5% would be $ 25,000, half of which goes to your agent (the other half goes to the buyer’s agent). This half is divided between the broker and your agent, usually in the 40-60% range. The agent must then cover the costs of hosting and marketing your home, which may include costs such as brochures and social media videos. This means that after taxes, your agent is earning approximately $ 4,500 from real estate sales.
There are discounted rate brokerages that also charge you a flat 1% commission, but they pretty much just list your house and put up a sign on your lawn. It may be whatever you want in this market, so you might want to consider that as well. (The Balance has a good overview of how these discount brokers work .)
How to negotiate a lower commission
You will want to do your best and negotiate a commission when you first hire an agent. Ask a potential agent about their experience and what you can expect from service at this rate.
Once you have an idea of what you are getting from a prospect, you can try to lower their commission by asking for a point or half a point from their commission. Strong arguments for lower fees might include:
- The agent is inexperienced. If a potential agent only has a couple of years of experience selling homes, they will likely need your business more than an experienced agent with a lot of referrals. You should of course remember the old adage, “You get what you pay for,” but not all inexperienced agents are automatically bad.
- This is the seller’s market. It usually takes weeks or even months to sell homes, but these days we see homes sold in a matter of days and no one sees them. By referring to listings and homes sold in your area, you can argue that your home will sell faster, which means your agent will have to do less work in a shorter period of time.
- The house will be empty. One of the biggest challenges for agents is negotiating with the owner to deliver and display the house. If you don’t actually live at home, this can make the sales process much easier for the agent.
- You can offer another listing opportunity. If you can offer other properties that can be sold, then a package discount would be a reasonable offer. Successfully referring family or friends is another way to do this.
- You are a regular customer. If you have a good relationship with an agent and have sold with them before, it is wise to offer a discount, especially if you promise to use them later.
If you can use any of the above arguments in your negotiations, you will be more fortunate in reducing your commission. Personally, I have had success with the “this will sell fast” argument and have been able to reduce our commission by 0.5%. But before, I sold the apartment to the same agent and could recommend another business to him, so I’m sure that helped too.