Are you planning to sell your home in the near future and want to learn more about real estate agent commission fees and if they're negotiable?
Well, you've come to the right spot! This is a very common question among potential home sellers, and the short answer is Yes, you can definitely negotiate real estate agent commissions.
In this article, we'll explore the structure and dynamics of real estate agent commissions, along with how you can work with prospective real agents to find the optimal agent, and commission rate.
Understanding Real Estate Commissions
First, it's essential to understand how real estate commissions work, and which parties are paid from the commission.
Real estate agents normally charge a commission based on a percentage of the final sale price of a home. This percentage can vary, but is typically between 4% and 6% of a home's sale price. However, a commission is not required to be percentage of the sale price, and can be a fixed dollar amount. Moreover, it can also be set at less than what is "typical". This is all part of the commission negotiation process that you'll learn more about below.
It's important to understand that an agent's sales commission that a home seller pays is split between the seller's agent (listing agent) and the buyer's agent. This "split", or what percent your seller agent earns vs. what the buyer agent earns is negotiable. It's common to see the commission split 50/50 between the listing agent and buyer agent. However, this can vary based on the services your listing agent will provide and the dynamics and health of your local housing market. Along with the total commission percent to be paid by the seller, the "split" percent is also negotiable.
Once the homeowner / seller and a listing real estate agent agree on a total commission (usually between 4 and 6%), the listing agent should work closely with the seller on how the listing and buyer agent split is structured, and what is optimal for the local housing market.
A listing agent should always provide a homeowner a 'Seller Net Sheet' which illustrates what a seller can expect to walk away with after a home purchase price has been agreed to and the home closes.
The Seller Net Sheet is also a great tool to visualize how real estate commissions, as well as other factors such as mortgage balances, excise taxes, property taxes, potential repairs, etc. can affect a seller's net proceeds.
Here's an online seller net sheet you can use to run scenarios with different home sale prices, repair costs, and real estate commissions.
Real Estate Commissions Challenged in Court
As you may have read or heard recently from the media, homeowners/sellers paying the buyer agent's commission is being challenged in court on several fronts. The ultimate outcome will likely take quite some time to be settled, along with how it may reshape the real estate industry and real estate agent's role, but nonetheless, the cases and rulings will likely have a lasting effect on the real estate industry. In fact, many real estate brokerages are already incorporating changes to ensure their real estate agents are more transparent (on the sell and buy sides) to ensure potential clients are fully aware of the real estate agent commission structure upfront.
Where Do Agent Commissions Go & Why Do They Earn So Much?
As you interview different agents, be sure you're fully aware of the total commission percent they charge. Ask if they can explain the breakdown, where the dollars flow, and if their commission is negotiable. Most real estate agents already provide this education and guidance as they understand the importance of being honest and transparent with current and potential clients.
As a potential seller, it's also helpful to understand that in addition to the buyer's agent commission split, a listing agent may also be splitting their commission with the brokerage with which they work for (i.e. eXp Realty, Keller Williams, Century 21, etc). In addition, since real estate agents are typically independent contractors, they must pay a portion of their commission toward state and/or federal taxes as well as healthcare benefits and retirement savings.
It may seem that real estate agents earn a considerable amount of money from each home sale, especially in markets with higher priced homes. However, when considering the multiple parties that are entitled to a portion of the sales commission, the dollar amount that the agent ultimately walks away with is considerably less than the gross commission amount that the seller pays.
Further, only a select few real estate agents are high-earners in a market, and the average real estate agent salary in Washington State is about $100,000. By today's standards this still equates to a great living, but by no means is it excessive. For perspective, the average Washington State salary is $72,000.
Factors That Can Influence Commission Negotiations
Local Market Norms The real estate industry is highly localized, and commission rates can vary by region or even county or zip code. Knowing the local market norms is a good starting point. A great way to learn more about a local market’s average commission rate is by interviewing several real estate agents (at least three). This will help you understand standard commission rates and fee structures. You can also conduct research online, or even talk to friends, family or coworkers that recently sold a home. If you’re comfortable posting on social media, pose a question as to what percent people have paid real estate agents in your area.
Agent's Experience and Expertise An agent with extensive experience and a successful track record may be able to command a higher commission. However, their skills, experience, and connections may also help you realize a higher home sale price.
Services Offered Some real estate agents offer additional services such as professional staging, home and yard prep, and/or digital marketing, which may justify a higher commission. Be sure to consider what specific services an agent brings to the table, and what you want, and need. If you don’t want all the bells and whistles, there’s a chance an agent will lower their commission.
Intangibles When meeting with an agent, what does your gut tell you? How well you communicate and jive with an agent, even in the early stages of an initial interview can be telling. A big chunk of a successful and fulfilling real estate journey is timely and accurate communication, as well as open and candid conversations. Here's a good little exercise - after an initial meeting with a real estate agent, email or text a few follow up questions to gauge the timeliness and thoughtfulness of their responses.
Real Estate Commission Negotiation Strategies
Interview and Compare Multiple Agents An effective way to negotiate commissions is to interview multiple agents. You can discuss commission rates during these interviews and assess the value each agent offers. You can let them know you’re interviewing multiple agents to find an agent you’re comfortable with, and that provides the right mix of services and cost.
Ask About Flexibility Be open and candid about your budget and expectations. Some agents may be willing to adjust their commission rate to earn your business, especially if you're a motivated seller with a desirable property.
Consider a Tiered Structure Some agents offer a tiered commission structure, where the rate decreases as the sale price increases (or their services, such as staging, decrease). This can be an attractive option if you're confident your home will sell at a higher price point.
Discuss the Entire Package Instead of solely focusing on the commission percentage, consider the overall package an agent offers. It's not just about what they charge but what they can deliver in terms of responsive communication, home preparation, marketing, negotiation skills, and market knowledge.
Final Thoughts - Negotiating Real Estate Agent Commissions
While it's possible to negotiate real estate agent commissions, remember that you often get what you pay for. The real estate industry and agents are no different. Cutting costs on commissions may not be the best decision if it leads to reduced marketing efforts, less effective negotiation, or a less experienced agent.
Ultimately, your choice of a real estate agent should be based on their qualifications, what they can bring to the table, and your general feeling from the initial meeting and any follow up conversations.
In Summary
You can certainly negotiate real estate agent commissions, but it should be done thoughtfully and in consideration of your local market, the agent's expertise, how well you mesh with them during your initial meeting/interview, and the overall value they bring to your home selling journey.
By engaging in open and honest discussions with potential agents, you can find the right balance between a fair commission and top-quality service, ensuring a successful and satisfying home selling experience.
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