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Negotiating On Real Estate Commission

negotiating real estate commission

Homes all across the United States get sold each and every day.  Almost every home that gets sold has the assistance of a real estate agent.  Although real estate agents do not get paid unless your home closes, the amount you pay your REALTOR can range substantially depending on a variety of factors.

Customary 6 Percent

It has been a customary that the real estate agent that lists your home collects 6 percent in real estate commissions.  If you are selling a home for $400,000 that quickly adds up to $24,000 in commission paid.  Although that full 6 percent that you pay in real estate commission is ultimately split between the listing agent and the agent that brings the buyer, it’s the listing agent that sets the amount of commission you will ultimately pay.

Commissions Are Negotiable

Although you may hear that the standard commission paid to get your home sold is 6 percent, that amount is customary and can be negotiated.  A new survey suggests that home sellers in America are starting to haggle with their agent on their real estate commission rates.  It is claimed that sixty percent of people who have sold their home in the past 12 months received some sort of a “discount” from their REALTOR.

Why Are Sellers Starting to Negotiate?

There are a couple reasons that may lead to sellers now negotiating their commission percentage when they list their home.  One reason is the influx of Discount Real Estate Brokers.  A discount real estate broker bases their business model on reducing the percentage that a seller pays their agent, so EVERYONE gets a discounted commission, no need to haggle.  Another aspect of the real estate market that could be driving home owners to negotiate with their REALTOR is the fact that the real estate market has substantially picked up.  With real estate sales getting stronger, it’s common for the inventory of homes to drop.  When housing inventory drops, sellers gain leverage in selling their home.  That leverage can lead to the homeowner negotiating a lower real estate commission rate.   The tightening of the real estate market creates more competition between listing agents, potentially allowing for a reduction in what an agent will “take”.

Disadvantages to Reducing Your Commission

At first glance, it may seem like a no-brainer to save money on your real estate commission.  Truth is…reducing your real estate commission can bite you, causing you to ultimately have your home on the market longer than it should ,sell at a lower price or even not sell at all.   Remember when we mentioned that the commission that you negotiate with your listing agent ultimately includes the amount paid to the selling agent too?  That is a very important fact!  If your listing agent reduces your overall commission and in doing so, reduces the amount they offer to the agent that brings the buyer, your home can become the home “no one wants to sell”.  Think about it… if a real estate agent has 4 homes for sale in a particular subdivision and all are paying them 3 percent (half of six percent) and YOUR home is only offering 2 percent or lower… it’s very possible that agents will avoid showing your property.  Another way that reducing your commission can hurt you is if you are using an agent that generally takes listings at 6 percent, and you negotiate a lower commission, they may reduce the marketing they do on your home.  For instance, they may take the lower commission, but choose not to pay for professional photos of your property.  Whatever marketing that a particular agent does, for their portion of the commission, may be substantially reduced for your home.

How Do You Save Money On Commission, But Still Get The Same Services?

The most important thing to look at when negotiating your real estate commission is “the split”.  What we are referring to is how much the listing agent or broker is taking as opposed to what they are offering the agent that brings the home buyer.  You want to make sure that the amount being offered is in line with other homes being sold in your area.  For instance, if you list your home at 5 percent, and the customary amount agents are making for bringing the buyer is 3 percent, you will want to make sure you are offering 3 percent to the buyer’s agent.  This is done in the listing agreement (sometimes called a marketing agreement) when you list your home for sale. This means that the only person working for less is your agent.  That brings us to the next tip for getting your home sold while paying less in commission, which is finding out EXACTLY what your agent will do to market your home.  Will they have a professional real estate photographer come out and take photos of your home?  Is there anything that they would “usually do” when listing a home that they won’t be doing when listing yours?  It’s easy to understand that if you are asking someone to take less than they generally charge; they may feel justified in not providing the same services.

Using a Discount Real Estate Broker

Discount Real Estate Brokers generally have these points worked into their business model.  They know exactly how to “split” the total commission.  They also have a process for getting your home sold at the discounted rate.  Many of the new wave of discount real estate brokers simply have done away with some of the more traditional, but less effective, marketing such as open houses or print advertising.

In Conclusion

It’s possible to save thousands of dollars selling your home.  It is very important that you understand the downfalls of simply reducing your overall commission.  Ask the right questions when you interview a REALTOR to list your home.  Find out what percentage they will offer to the buyer’s agent.  Find out exactly what your REALTOR will do to list your home.  Find out if they are NOT doing something, in the marketing of your home, that they generally do.  Following these guidelines can not only save you money, but still have you get your home sold fast.

 

 

 

 

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  1. Pingback: Become Self Employed! | 10 Things Your REALTOR Doesn’t Want You To Know

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