Can You Negotiate a Real Estate Commission?

By Realty Times Published Dec 2, 2020 09:16 am

In a real estate transaction, there are typically three main parties involved. There are the real estate agent, the buyer and the seller. The takeaway for the agent is a commission, but many people experience confusion about things like how much it is and how it’s paid. They also wonder if they can negotiate a commission.

What is a Typical Commission?

Most people think there’s a standard percentage across real estate for commissions. There isn’t a fixed price. There is an average prevailing fee in most states that’s around 6% of the final sales price of a home, however. If an agent sells land, they may get a higher commission of anywhere from 10 to 20% because it takes more time and a larger marketing budget to sell land.

The seller of a property is typically the one who pays a commission. It goes to the listing agent, and then the listing agent gives a portion to the agent representing the buyer. The home buyer doesn’t pay anything.

Most real estate agents only work on commission and don’t earn a base salary.

So what it might look like if you were to sell a $200,000 home is that the listing agent would charge a $12,000 fee. That would be a 6% commission. Then, they would split that with the buyer’s agent, so the agent representing the buyer gets $6,000, and the listing agent gets $6,000.

Then the agent has to share part of that 3% with their brokerage office. Sometimes that amount could be as high as 40% of the 3%.

Agents also pay for a lot out of the fee, including their marketing and insurance costs. Commissions are paid at the time the title transfers for the home.

Can a Seller Negotiate?

Legally, a commission is negotiable. However, sellers have to be careful here. While an agent might be willing to negotiate in certain circumstances—for example, the property is high-end or it may help them break into a great neighborhood, in many cases, they wouldn’t be.

If a real estate agent is too willing to settle for a lower commission for seemingly no reason, you have to think about how their negotiation skills will look later on when they’re working on a deal for you.

The entire goal of hiring a real estate agent is to get the best price for your home, along with the best terms. A real estate agent who quickly agrees to take a lower commission may not achieve those goals. Also, the marketing costs will come from that commission, so in taking a lower fee, will the agent be cutting corners on their efforts to advertise your home?

It’s not unusual for an agent to be unwilling to negotiate their commission simply because they don’t have to. They may be so busy that there’s no reason for them to take a lower commission. They can simply move onto other sellers.

What if the Same Agent is Handling Selling and Buying?

If you’re going to sell your home and then the same agent will help you buy another one, they earn both commissions. It’s possible that you could get a discount in this situation, but again, maybe not. Both transactions are separate from one another, and both require their own work. It doesn’t matter to the agent if the seller and buyer are the same people because the workload would be the same as if they were different people.

What if the same agent represents you and the buyer?

This is a situation known as dual agency, but not all states allow this.

In this case, if it’s legal, an agent could earn the listing and selling fees. You might ask a listing agent if they will lower their commission fees, although again, there’s no obligation on the part of the agent.

While negotiating is possible for real estate commissions, it’s not always the best idea nor will it always result in a discount for you as a seller.