As a home seller, you’ve probably put some thought into how you’ll negotiate once you receive an offer or two on your home. But have you ever thought about negotiating with prospective real estate agents before you list your home for sale?
According to the Zillow Group Consumer Housing Trends Report 2018, only 1 in 3 sellers (31 percent) negotiate with their agent before listing. For those who do negotiate, a little over half (57 percent) are successful in changing some or all of the agent’s terms, which means it is probably worth a shot for sellers to attempt to negotiate as they interview agents.
Interestingly, sellers are more or less likely to negotiate with their agent based on their generation. Millennials are the most likely to negotiate, at 39 percent, followed by baby boomers at 30 percent. Additionally, 28 percent of Gen Xers negotiate, and 26 percent of the silent generation do.
Things sellers should know about real estate commissions
Before you negotiate commission rates with an agent, you should have a good understanding of how real estate commissions work.
Standard rate: There is no standard real estate commission that applies to all agents across the board — it’s actually against the law. However, in most major real estate markets, the typical listing-side commission is 3 percent.
Rates by region: Full-service agents in the same market usually charge about the same commission percentage to stay competitive and profitable.
Concessions and commission amount: Sellers pay commission on the sale price of the home before concessions. Let’s say you list your home for $220,000 and receive a full-price offer. Upon inspection, the buyer finds a few issues with your roof and requests a $10,000 concession to do the repair after closing, and you agree. Your agent is still entitled to commission on the $220,000 price (and not the lower $210,000 post-concession price).
Dual agency: Dual agency is when the listing agent takes the full commission (instead of splitting it with a separate buyer’s agent), based on representing both the buyer and seller. In some states, dual agency is not allowed because of concerns over conflicts of interest. In states where it is legal, it’s still frowned upon by many brokerages, and there are strict disclosure rules. The agent must take on more of a facilitator role instead of an adviser role.
How does real estate agent commission work?
It’s a common misconception that if you pay your agent 5-6 percent of the listing price, they’ll pocket the full amount. This misconception can make it feel like you’re paying way too much, but once you see how the money is actually broken down, you may feel differently. There are a lot of different expenses that your agent has to pay out of that fee.
Split with buyer’s agent
It’s typical that the full commission amount is split down the middle, with your listing agent getting half (2.5-3 percent) and the buyer’s agent getting the other half (2.5-3 percent). Sometimes, the listing agent will reduce the buyer’s agent commission by $200-$300 for MLS fees, which means the listing agent gets a bit more money than the buyer’s agent.
Example: On a $220,000 home, 6 percent is $13,200, which means that each agent gets $6,600.
Split with managing broker
The listing agent then splits their commission with their broker, meaning the person who runs their real estate team or firm. Their split depends on how many homes they sell in a year, their seniority and other factors. A top-performing agent can have a split as high as 90 percent (meaning they give their broker 10 percent and keep the rest), where a newcomer might have a 50-50 split. The reason for the difference is that a more seasoned agent probably brings in more money to the agency over the course of the year, and a newcomer might need more help during the transaction process.
Example: A midlevel agent may keep 70 percent of the commission, handing over 30 percent to the broker. That brings their commission from $6,600 down to $4,620.
Marketing costs
From professional photography and videography to Facebook advertising and open-house expenses, a full-service listing agent can incur a lot of costs marketing your home and helping you get top dollar.
Example: If your agent spends roughly $1,000 marketing your listing, that comes directly out of their commission, bringing it down to $3,620.
Self-employment tax
Real estate agents are independent contractors with 1099 agreements with their brokerages. This means they pay self-employment tax, which covers Social Security and Medicare. The percentage is higher than what people who work as employees of a company pay, because there’s no employer to share the burden. Independent contractors pay a payroll tax rate of 15.3 percent, compared to regular full-time employees who split that cost 50-50 with their employer. This doesn’t even include regular federal or state income taxes.
Example: An agent sets aside 30 percent of their earnings to pay payroll and income taxes, taking their remaining commission down to $2,534.
Earnings
When all is said and done, your real estate agent may end up taking home roughly $2,500 of their $6,600 commission, and that doesn’t take into consideration additional expenses like gas, parking, office expenses, association dues or MLS fees.
What’s a discount broker?
A discount broker is a real estate agent or brokerage that specializes in offering lower listing commissions and/or buyer rebates in exchange for limited services. Discount brokers, which are also called limited service brokers, have risen in popularity over the last decade.
It’s a mistake to think that a discount broker will give you the same level of service as a full-service agent but at a lower price. By going with a discount broker, you usually sacrifice things like professional photography, marketing services, advertising costs and open-house planning and hosting. Discount brokers may list your house on the MLS, put a sign out front, and possibly be involved in the contract negotiations and closing paperwork, but the rest will be up to you.
In a sellers market, where homes sell quickly without much back and forth with the buyer, it can make sense to save some money by using a discount broker. But it isn’t for everyone, and it puts much more of the burden on the seller.
Discount brokers are not to be confused with iBuyers, which are companies that directly purchase homes for cash. With Zillow Offers, you sell your home directly to us for cash, which lets you bypass the listing process and sell without using an agent.
Tips for negotiating real estate agent fees
If you’re looking for full-service results but hoping for a discounted commission, you can try negotiating with a traditional full-service agent — one who doesn’t advertise discounted fees.
As you begin negotiations, remember that any discount you get would only apply to the listing agent’s side of the commission. If you attempt to cut the buyer’s agent’s commission as well, you could deter buyer’s agents who are accustomed to a certain commission percentage. They might be less likely to show buyers your home since they know they’ll make less money.
Here are a few things you can do to set your negotiations up for success.
Buy with your listing agent
If you’re buying a home around the same time that you’re selling and offer to use the same agent for both transactions, they may be willing to take a reduced commission. After all, 2 percent of two deals is better than 3 percent of one deal! If you go that route, keep in mind that it might be written into your listing agreement, so if you opt not to buy with them after all, you might in breach of contract.
Guarantee referrals
If you have a friend who’s ready to sell (or buy!) and you can get them to sign with your agent, they may discount their commission in exchange for your referral.
Consider a newer agent
You may have better luck in real estate agent negotiations if you choose a newer full-service agent. They may be looking to build a book of business and be willing to take a lower rate to gain experience. And newer agents can be eager to please, which can mean a great experience for sellers.
Vacate early
Another real estate agent negotiation strategy is to vacate the home early but leave it staged. Sometimes it’s easier for agents to sell a home when nobody is living in it, especially if you’re willing to put a lockbox in the door and allow showings anytime. This can be attractive to your agent, and they may be willing to discount their commission in exchange for the convenience.
Allow a lockbox
Even if you’re still living in the home, allowing a lockbox can be an attractive bargaining chip with your agent. The lockbox will only be accessible by other licensed agents, and you’ll get ample notice before a showing so you can vacate. It can save your listing agent many hours of time, as they won’t have to personally host every showing. Agents sometimes end up paying assistants to host showings, so allowing a lockbox can save them money as well.
Sell in an off-peak season
An agent may be more amenable to accepting a lower commission in an off-peak season, when they are less busy but still need business.
Have a pre-inspection
Much of a listing agent’s work happens during negotiations between buyer and seller, after the inspection. By completing a pre-inspection before listing and making any necessary repairs upfront, you can avoid any inspection surprises. That will help the negotiation process go more smoothly, which can mean less work for your agent. And if they can market all the improvements you’ve made (or alternatively, if they negotiate an as-is contingency), your agent will enjoy an easier path to closing.
Offer multiple listings
If you’re a real estate investor and you are planning on selling multiple properties in the near future, your agent may lower their commission rate since they’ll be making money off multiple sales.
Reasons agents might not want to negotiate
If your agent is hesitant to negotiate their commission, there could be a few valid reasons:
- They get so much business at their standard rate that they don’t need to take a lower rate.
- They wory that word will get out, and they’ll be stuck taking a lower commission with future clients.
- They think your home may be hard to sell, either because of unusual features or because of a slow real estate market.
Keep in mind that if your agent is a hardball negotiator, that’s a good thing! It means that they will use those negotiating skills with your buyer.