While some agents will tell you that a 6% commission rate is standard in the industry, you should understand that there is nothing legally written anywhere that requires agents to offer that percentage.
What is more interesting is that while technology has improved the process over the past ten years, that “traditional commission rate” has not changed much. So what gives?
In our opinion, the following factors make agents hesitant to lower their rate:
But here is what you, the consumer, need to understand: the problems listed above have nothing to do with you, and everything to do with a broken industry. Consumers should not be paying the price (standard commission) because of issues they did not create.
1. The rise of referral platforms:
These are the platforms that offer to connect with the best agent for “free” but then take a percentage of the seller agents commission, sometimes up to 30%. We wrote about these types of platforms last week (view here
2. Overload of agents:
Last year, there were almost 2 million agents (1.3 million being Realtors) for only 5.34 million homes sold. Brokerages recruit agent because agents pay a fee to them, even when they don’t sell anything. Also, some companies give existing agents financial incentives to recruit new agents. It’s probably hard to lower your commission when you are already making less money because you are competing with agents for listings.
3. A traditional agent is a commission-based job:
Full-time agents make their living off of selling homes. If they are already dealing with the problems above, when you factor in personal taxes, their healthcare, etc., they are reluctant to lower their commission.
We get it, talking about commissions can be uncomfortable. However, this is your money to put towards your next home. If you are selling a home for $300,000, we are talking about a difference of $6,000 if commissions were lowered to 4%. Selling a home for $700,000? A reduction of 2% would save you $14,000.
So how do you negotiate? We talked with Homeopenly for their advice on how to navigate the conversation, and how to ask for less.
1. Understand that a higher commission rate does not lead to higher sale price
Uncompetitive agents often imply or state directly that a higher rate results in a higher final home sale amount. There is absolutely no evidence for this. In fact, there is no evidence of agent quality based on past MLS transactions either. Each home is unique, and each sale circumstances are unique. However, some agents are able to sell your homes for a higher amount and charge highly competitive fees for their service. These are the agents you want to work with.
The current market conditions largely define the value of your home. As a seller, you can firmly assume that your home will sell for what it will sell. A competitive agent who offers an exceptional service helps to facilitate your transaction by the addition of quality. Once you negotiate a competitive rate with an agent, by default, you are cutting down on one of the most significant expenses of selling a home. This action alone raises the net amount of your hard-earned equity.
2. Seek transparency about referral platforms, then negotiate the listing rate
As a home seller, negotiating the listing rate is crucial because it directly affects your net equity. Transparency is essential when negotiating a listing rate with a real estate agent because in the current broken real estate representation market you are consistently subjected to “standard” 6% listing rate and 25%-40% referral fees (paid through your commission) associated with it. HomeOpenly estimates that US consumers spend about $10-$15 Billion in excessive commissions each year, mainly due to hidden referral fees.
The first thing you should ask your real estate agent is if they are bound by a Referral Fee Agreement with another broker or a referral network. If a broker has a Referral Fee Agreement that means that you are effectively hiring two brokers at once – someone else gets 25%-40% in referral fees, and your agent only keeps 60%-75% of their commission. Such agreements do not allow for legitimate savings. As a consumer, you will either suffer a reduction in service quality or pay an exigent commission rate; there is no third option.
We can’t stress enough that you should not use referral platforms if you are looking to negotiate with a traditional agent. To find a great agent, ask your friends and family, do your research online, check out their social pages, but ALWAYS contact that agent directly and not through a referral platform.
Helpful Hint: A good way to know if a platform is taking a fee is by looking on their website for a brokerage license. Companies cannot accept referrals from agents if they are not licensed. If the platform offers to connect you for “Free” but has a license, that is your first sign to start asking questions.
3. Know your negotiating power
Here are some things you can help you when talking about a lower commission rate with your agent:
If you have a home that is updated, in good condition, and in a seller’s market.
If you are buying a home after you sell, consider using the same agent as they would then receive the buyer's agent commission when you purchase your home.
If you are buying a home out of state, your selling agent can receive a monetary referral fee for finding you an agent to use in your new state.
If you did a pre-listing inspection and corrected issues, prepared your home, and had professional pictures taken.
Most importantly, if you pre-marketed your home (as you would on Selling Later) and have interested buyers already to pass along to your listing agent.
Remember that the problems within the real estate industry were not created or caused by consumers, so they should not pay the price for it. You should feel confident and empowered to ask for less. If an agent says no, then interview one of the other thousands in your area.