Here’s what realtors aren’t saying: If you’re going to sell, now’s the time to negotiate a lower commission from that listing agent. Negotiating a realtor’s commission will save you tens of thousands of dollars—and could permanently change how you handle future sales.
What’s a real estate agent’s commission anyway?
Traditionally, real estate agents charge 5 percent to 6 percent of the final sale price, with the seller paying the entire commission. And traditionally, the residential real estate industry has been fine with the fiction that the services of the buyer’s agent are “free” to the buyer. It’s fiction because the buyer ultimately covers the commission, through the price paid to the seller. The 5 percent or 6 percent that the seller forks over is split four ways—with the listing agent, buyer’s agent, the listing brokerage, and buyer’s brokerage all receiving equal amounts. The commission that sellers pay is a big bite of their home equity, especially in today’s red-hot market, in which houses almost sell themselves. These days, nearly all buyers haunt online listing sites to pounce on newly available houses, according to research from the National Association of Realtors (NAR), the biggest professional association for realty agents. So it’s reasonable for sellers to ask why they are paying so much of their equity—when the market itself is propelling sales.
Is negotiating commission a new thing?
Pretty much. The NAR has officially opened the door for home sellers to negotiate commissions. The organization went on the record in November with new “guidance” intended to shift consumers’ perceptions to the value and corresponding payment that agents bring to both buyers and sellers. In other words, the NAR doesn’t want you to think that its agents work for free—for anybody. As part of its guidance, the NAR is also encouraging consumers to have more frank and open discussions with their agents about the commission. Technically, it has always been a consumer’s right to negotiate, but the profession has long defended its traditional fee structure. Now, it’s officially OK to negotiate—in today’s market and tomorrow’s, too. The guidance recognizes the realities of today’s market and also the proliferation of new real estate business models, including flat-fee and discount brokers, says the NAR president, Ron Phipps, a longtime broker based in Rhode Island.
Why—and how—to negotiate a real estate agent’s comission
The payoff for negotiating can be worth it. For example, by the third quarter of 2021, the average U.S. homeowner had gained $56,700 in equity in the prior 12 months, according to mortgage data firm CoreLogic. A traditional 6 percent commission paid on just that newly acquired $56,700 would siphon $3,402 from the seller’s pocket. But if the seller negotiated a commission of 4 percent, translating to $2,268, they would keep an additional $1,134. Just for asking for it. But how to ask? With agents and home sellers so accustomed to the traditional 6 percent or 5 percent, how do you even open the conversation, even though the NAR has broken the ice? Start by finding brokers and agents who include pricing information as part of their marketing pitch, recommends Luke Babich, founder of Clever, a St. Louis-based platform that negotiates reduced commissions on sellers’ behalf with top agents and then helps coordinate the logistics of selling. If the agent is open about how much they charge, then your inquiry about their commission is simply following up. “The NAR is really just acknowledging what top agents have already been doing,” says Babich. “Efficient agents are willing to pass on savings to consumers.” Approach the negotiation for what it is: hiring someone for a job, says Babich. Price is one of several factors. Instead of opening the “job interview” by asking how much the agent will do for less, outline your key factors for success—especially speed, price, and convenience. “Say that you’re looking to hire someone based on a range of factors, including experience, your connection with them, and the price they offer,” says Babich. “Be explicit that you’re talking with a range of agents and that you will consider several factors, including price.” Phipps recommends asking each of several candidate agents “what their distinguishing characteristics are, not just the cost. That will be extremely valuable,” he says, “because some consumers may need less resources and some will need more, especially first-time sellers.” Collect key metrics from each agent you interview, including the average time it takes for them to sell the houses they list (known as “days on market”) and how much the houses they list actually sell for compared to the initial asking price (known as the “sale price to asking price ratio”). And be sure to document the commission in the listing agreement so it’s in compliance with state laws, which prohibit under-the-table kickbacks. Be ready with counter-offers that prove that you are willing to give as well as take, advises Babich. This may mean offering to do a little extra work, such as gathering documents required for the sale or marketing the house through neighborhood social media and groups that might not welcome an agent’s direct pitch. Throughout, emphasize that you and the agent are on the same side, says Babich. Offering to write an endorsement that the agent can use after the house sells shows that you understand “how to align your interests with the agent’s,” he says. You could even cite the NAR’s guidance as evidence that a frank discussion about the commission is the new normal. “The best way to empower consumers is not to cut professionals out of the transaction—but to give consumers the information to be their own advocates,” says Babich.
