Four tips to save on real estate commissions

Four tips to save on real estate commissions

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Washington, DC
CNN
 — 

Real estate agents’ fees are always negotiable. But it doesn’t always feel that way to the homeseller, who typically pays the commission.

That fee, which is usually between 5% and 6% of the final sales price in the United States, is typically split evenly between the homeseller’s agent and the buyer’s agent.

But real estate agents are professional negotiators who make their living in sales. Most are members of the National Association of Realtors, which is the largest trade group in the country representing 1.5 million agents, and are trained to come armed with a list of reasons why they shouldn’t lower their rate for you.

Few dispute the value of a good agent who knows the market, is experienced in how to prepare a home for sale, and successful in marketing a home and closing the deal. But many sellers — who can find home-value estimates, download contracts and arrange for financing for themselves online — wonder if the fee has to be so high.

It can feel daunting for owners selling their home — one of the largest transactions in their lives — to go toe-to-toe with a pro who has negotiated three deals before lunch.

The good news is that with so few properties on the market now, sellers have more leverage to negotiate with agents who are circling, looking for listings.

“Homeowners being aware of how much power they have is really key,” said Nic Johnson, a real estate industry entrepreneur. After 17-years at PIMCO, an investment management firm, he launched Listwise, a company focused on helping homesellers get the best price for their home and only pay for the results they get from an agent.

“In my experience working with agents, most agents will negotiate their rate,” said Johnson. “They’ll lead with, ‘This is my standard.’ But they have another rate, which is their, ‘This is what I’ll take to get your business,’ rate.”

Here are some tips to help you lower the commission.

Know the commission landscape in your area

If real estate is all about location, negotiation is all about preparation.

Use a real estate listing site — like Redfin, Zillow, or Realtor.com — to look at current properties on the market in your area and what the typical buyer’s agent fee is. The research will help you know if your expectations on the commission are realistic.

The big listing portals now disclose the fee the buyer’s agent will get (if they have access to that information and if a seller is offering the buyer’s agent payment). Since sellers typically offer a commission that is split evenly between their agent and the buyer’s agent, a 3% fee for a buyer’s agent, for example, generally means sellers near you are paying a 6% commission.

But if most of the comparable properties on the market in your area show a buyer’s agent commission of 1.5%, for example, you can reasonably assume the full commission paid by a seller is closer to 3%. And you may not have to work very hard to get an agent in your area to agree to that.

Sure, negotiating with one agent can be daunting enough, but you should really try to meet with three to five. As the seller, you have the goods they want to sell, and you have the power to hire or not hire the agent.

Be sure to ask what services will be included. When asked to curtail their fee, many agents may also curtail their services.

Good full-service agents deliver a lot of services. Agents you meet with should make their case and express their value. Ask them to explain what they will do to help you get your home sold for the most money in the least amount of time.

You’ll want to be sure the agent will market and list your property on the local multiple listing service, a database of local listings, where it is likely to reach the most buyers, and you’ll want to be sure they will help you with the paperwork involved with closing.

An agent will need to be paid and in a negotiation around commission they are likely to point out all the costs they have — membership fees, photos, marketing, technology platforms — as an agent.

Be prepared to point out the ways in which working with you and selling your house could be less work than a typical sale for them.

If your home is in a desirable area where few homes come to market, remind your agent that it’ll likely take less effort to sell. If your home is in good shape and decluttered, you may not need a lot of hand holding from an agent with regard to prepping the home for sale. That can also be a bargaining chip.

The condition of your home can be subjective, so make sure you’re being realistic and perhaps enlist the help of a third-party whose opinion you trust to keep you (and the agent) honest about the condition of your home.

If you’re selling, are you also in the market to buy a home? You’re more likely to get a discount if the same agent you hired to sell your home also helps you buy your next one.

Also be aware of the power of organic marketing. If you have a large social network or community or friend group, an agent may be interested in the positive recommendation you could share within those groups of potential clients.

A full-service real estate agent isn’t what everyone needs or wants. And there are other models for selling your home.

Discount brokerages are those that typically charge less than the standard 5% to 6%. While some offer services similar to traditional agents, others offer much more bare bones services. If that is all you need — someone to just handle the paperwork, for example — it may be a good way to save money. But be sure you know what is being offered by the agent for their fee.

There are also companies known as ibuyers — like Opendoor and Offerpad — who will buy your home with a cash offer and you don’t have to list the property or do any showings. The fee for this is typically not that much lower than full-service agent fees — usually around 5% — but saves a seller the hassle of preparing, marketing and showing the house.

There are also emerging startup companies looking to help reduce the cost of buying and selling real estate.

Listwise, Johnson’s company, offers a seller several proposals from area agents willing to work for an incentivized pricing structure in which they work for a very low commission and receive a larger commission if they sell the home over a certain price.

Other companies like Clever match sellers with low-cost, full-service real estate agents from traditional brokerages whose commissions are lower. Upnest provides a seller with several proposals from agents and they can compare service offerings and fees.

Or sellers can use companies that offer lower commissions, like Redfin, which offers an agent commission of 1.5% to sellers, which along with a buyer’s commission of 1.5% to 2.5% would make the total commission 3% or 3.5% compared to the typical 5% to 6%.

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