How to Negotiate Your Realtor’s Commission

Did you know that your Realtor’s commission is negotiable? Even though the industry norm is that the seller pays 6% of the sale price in commission (3% to the seller’s agent and 3% to the buyer’s agent), there is no hard and fast rule that this is what you have to pay. Like anything else in the real estate business, you can negotiate your Realtor’s commission.

After you discover how much is at stake, I think that you will agree that negotiating your Realtor’s commission is well worth your time. For example, if you sell your house for $300,000, a 1½% decrease in commission will save you $4,500! Likewise, if you are on the buying side asking for a rebate of 1%, when you are purchasing a $400,000 home, will allow you to walk-away from the deal with $4,000 in your pocket!

It’s a Tough Market

Unless you are a first time home buyer with excellent credit and a chuck of change to put down on a home, you are going to have a rough time buying and selling in this market. Fortunately, the one thing that you do have some control over is the agent you choose and the commission agreement you negotiate with them. Since the real estate industry is doing so poorly, these agents are more likely to cut you some slack when you suggest that they cut their commission and pass the savings along to you. They will be especially likely to comply to your request if you are a SERIOUS buyer or seller.

Price to Sell

The number one thing an agent considers when they are interviewing, and being interviewed by, a prospective client is how much of their time you are going to take. If you are on the fence about selling and want to overprice your home “just to see if you get any offers” don’t expect your agent to give you a piece of their pie. Pricing to sell is the most effective way you can strengthen your position when asking your agent to drop their commission.

A good agent knows that the less time they have to spend waiting for you to become realistic on the list price of your house, the less time they will have to “put on a show” marketing an unsellable property. If you overprice a home in this market, waiting’s all you’ll really both be doing. Waiting, and waiting, and waiting some more!

Your agent is legally obligated to work for your best interests. When they tell you to price your house for $30,000 less than you thought it was worth, they are only trying to save you both a major headache. In this buyer’s market, if you want to have a chance to sell your home, you need to competitively price it to move. Let the natural forces of capitalism do their work.

Be Ready to Buy

If you are planning to buy, don’t start looking until you are ready. The houses that are on the market today may be gone tomorrow. If you find the perfect house now, but are unable to buy, you might be sorely disappointed when you can make your offer and the house has already been sold.

To avoid this situation, before you call an agent up to show you around, get financing. Since banks have been forced to buckle down and only grant loans only to the crème de la crème, you may not be able to qualify for as large of a loan you were expecting. This story is sad, but true. Too many people lost their shirts taking out many-a-loan they had no way of repaying.

Be open with your agent about what you can afford and when you want to buy. They will respect your honesty and be more obliged to take your request for a portion of the commission more seriously. In the real estate game, time is money. As much as your agent may act like they love spending their Saturday afternoon chauffeuring you around, they don’t. Trust me on this one.

Interview Multiple Agents

When you are ready to make the big move, start to interview agents. No matter if you are buying or selling, you need to invest some time in choosing the right agent. There are virtually no barriers to entry in the real estate industry, so the quality of agents out there varies dramatically.

If you do not personally know of any agents in your area, call a few of the big local real estate firms and they will gladly send over one of there finest to pitch you on choosing them. Even if you have a close friend or relative who is a Realtor, as almost everyone does now, be open to choosing someone you don’t know if they are the right person for the job.

A word of caution—Many Realtor’s are trained to push the hard sell and get you to sign the listing agreement before they walk out the door. Don’t fall for this move. They will still be there tomorrow to take your listing. You owe it to yourself to be diligent on this matter and wait until you have interviewed each agent on your list. You do not want to make your decision until you are happy with the commission settlement. After you have interviewed at least three agents, rank them in order of most to least desirable.

Ask for a Discount or Rebate

Before you firmly decide on an agent, ask for a discount on the commission. Don’t skirt around this issue. Be blunt about how much you want them to cut their commission. Realtor’s are trained negotiators. You need to show them confidence in your own negotiation skills before they will even consider your offer. Remember they are selling your house, or writing up your contract, for their livelihood. Needless to say, they take their commissions seriously.

Here are two tactful ways to approach the issue:

“I would love to list my home for sale with you, but need to make the most from the sale as possible for the down payment on our next home. I need a commission discount of _____% to sign the listing agreement today.”

“You seem like you have some great ideas about finding the home that is right for my family. The only thing I am worried about is being left with no cash in hand after the sale goes through. The only way I will be able to buy and home and pay the fees for moving is if you can offer me a rebate on your commission of _______%.”

After you are pleased with the commission agreement, sign the listing or buying agreement with your agent. Remember to approach this issue BEFORE you sign anything.

Once you have the property listed, or have committed to buy, with a specific agent it is much harder to get them to agree to take a commission cut. They are well within their legal right to turn you down flat. They may also find the suggestion insulting and take it as a sign that you do not appreciate what they have done up to that point. Whether or not this may be true, the last thing you want to do is create animosity in this relationship. They are supposed to be on your team, not on the other side. Asking for a discount before the contracts are signed is a whole other story.

How Much to Ask For?

You can realistically ask your agent to cut their portion of the commission by up to 50%, typically 1.5%. No matter how much (or little) you get them to shave off their points, remember that it is better than nothing. Depending on the price of the home, even a ¼% cut on the deal can save you thousands!

Move On

If you can’t come to a commission agreement with the top agent on your list, move on. If you keep looking, you will find the right agent with the right commission, guaranteed. In the world of real estate, there are MANY fish in the sea.

No Frills Deals

If you would prefer to do a majority of the work to save the maximum amount on commissions, consider listing your house with a flat-fee broker. They will put your home on the local MLS (where all the agents go to view available properties) for minimal cost, but be aware that you will have to do all of the marketing and negotiating yourself.

Buyers can also find a similar offer through a firm that offers the least bells and whistles, such as finding and showing you properties, but will automatically rebate 50% of the commission back to you when the deal is done. The go-to company for this service in Seattle is RedFin.

Have you made a great deal with your Realtor on commissions? How were you successful?