How to Negotiate a Real Estate Commission
When it came time to list their five-bedroom, three-bath home with a real estate agent -- and agree on the commission they'd pay -- Nancy and Rick Razzano of Wayne, Ill. got a surprise.
"The agent told us that the commission was 5 percent to 7 percent, and that we should pick it," recalls Nancy. "She seemed to be very ethical and honest, and she was very up front that if we picked a 5 percent commission, it wouldn't make any difference in how she worked to sell our home."
Yet the couple didn't automatically opt for the lowest amount on the scale. Instead, they asked smart questions so they could better understand the commission structure and its potential impact on their deal. "We talked about how the commission affects your ability to sell the house," says Rick.
When you're ready to list your home, you need to be equally inquisitive about your agent's commission. Here are three ways to save money on commissions without compromising your home sale:
1. Remember, commissions are negotiable
Many consumers don't realize that the so-called "standard 6 percent commission" doesn't exist. Anti-price-fixing laws require that real estate commissions be negotiable. While the Razzanos' agent indicated that she wouldn't list the home for less than a 5 percent commission, there's no set rule that dictates how little you pay.
Though the Razzanos' agent said that she did not believe a lower commission would prevent showings of the property by other agents (who receive a share of the commission in exchange for bringing a buyer), some agents do counsel against settling on too low a commission for exactly that reason. Before you commit to working with an agent, interview at least three prospects and discuss how much of the commission each plans to share with the buyer's broker.
Some agents confidently request a 6 percent or 7 percent commission, and they may be worth every penny. But you should know what you're getting before agreeing to an amount. When you interview agents, ask: What do you do that other, less expensive agents don't? What justifies a commission higher than I'd pay with another agent?
For example, if your home is a luxury property in an exclusive area, it may cost more for your agent to advertise in high-end, exclusive publications and websites that cater to that crowd. Or perhaps your agent is one of the top in your area and has a vast pool of contacts. It may be worth paying more to easily reach that top agent's network.
3. Commission-based payments aren't your only option
In the past 10 years, there's been an explosion of companies that offer alternatives to real estate commissions, from ZipRealty to HelpUSell. They run the gamut from flat-fee brokerages that charge you a set fee to list your home in your local Multiple Listing Service to a la carte brokerages, which offer a range of services, each priced individually.
The Razzanos considered listing with a discount brokerage. "We did think about it," Nancy says. "But many of them don't do any special advertising, and I know that some agents don't go out of their way to show those houses." Because the Razzanos already owned another home, they chose to go with a 5 percent commission to an agent. "In our predicament," she says, "we decided our best bet was to sell the house faster rather than more cheaply."
Selling your home? Here are some AOL Real Estate guides to help you, whether you're working with an agent or marketing your home on your own:
How to Score Top Dollar for Your Home
Home Appraisals for Sellers
- Open House: When It's Worth It -- or Not
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