How Much To Negotiate Realtor Commission

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
FreddieG
Posts: 188
Joined: Mon Sep 15, 2014 4:42 pm

How Much To Negotiate Realtor Commission

Post by FreddieG »

I am in the DC area, and am selling my home in a neighborhood where most homes sell for over 500k. I do not have a mortgage. I had one realtor who specializes in my 'hood, grudgingly tell me that they'll take 5%, but that's the lowest they can go.

Should I ask for 4.5%, or would I pushing too hard? I am just now show what a reasonable discount is. Is 5% a good deal? I just had to part with such a large chunk of the value of my home.

My home is in good condition, and desirable, so I don't think it will take a lot of work.

I don't have the time to do FSBO, and not sure that I am sold on Redfin, etc.

Thanks for any input.
absolutFinance
Posts: 165
Joined: Fri Jan 03, 2014 2:08 pm

Re: How Much To Negotiate Realtor Commission

Post by absolutFinance »

is that combined seller + buyer's commission? usually it is 3% each. if you're working with the realtor to buy a new place, you have more leverage for a favorable arrangement.

BTW - Redfin does work pretty well from what I have heard
TRC
Posts: 1969
Joined: Sat Dec 20, 2008 4:38 pm

Re: How Much To Negotiate Realtor Commission

Post by TRC »

At 5%, the selling agent will like take 50%, and then split that again by 50% wih his firm. So 2.5% is $12,500, divided in half for his firm, so he'll take home $6,000 before taxes.
DSInvestor
Posts: 11647
Joined: Sat Oct 04, 2008 11:42 am

Re: How Much To Negotiate Realtor Commission

Post by DSInvestor »

When I sold my place, I interviewed three agents. Two agents asked for 6% of the selling price. The third agent asked for 6% of first 100K then 4% of everything else. I wanted to use one of the first two agents so I went back and asked if she would accept 6%/4%. She did. When she listed the home, the buying agent got half i.e. 3% of first 100K and 2% of amount above 100K.

The buying agents see what the compensation will be on each listing and I guess the lower the commission for the buyer the less incentive to show that listing to their clients.

It was a lot of money paid out to the agents. I went to contract in 5 days and act of sale was 34 days after the listing went up. My condo was the first property she showed her client and her client made a cash offer right there on the spot at above asking price with no contingencies to beat out another offer. I just accepted it. That may have been the easiest 9K she's ever made. The selling agent had to do more work. She showed the property to about 35-40 people in the first 5-6 days. I don't know how many speeding tickets she got running around town to get back to my condo.
Last edited by DSInvestor on Mon Mar 16, 2015 7:03 pm, edited 2 times in total.
Wiki
User avatar
Dutch
Posts: 1277
Joined: Thu Jun 27, 2013 2:12 pm

Re: How Much To Negotiate Realtor Commission

Post by Dutch »

Real estate commission as a percentage of sale price is long overdue for reform imo
User avatar
rob
Posts: 5247
Joined: Mon Feb 19, 2007 5:49 pm
Location: Here

Re: How Much To Negotiate Realtor Commission

Post by rob »

Dutch wrote:Real estate commission as a percentage of sale price is long overdue for reform imo
Completely agree.... but with the near monopoly it's going to be a tough one to crack.....
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
marielake
Posts: 186
Joined: Fri Mar 14, 2014 5:39 pm

Re: How Much To Negotiate Realtor Commission

Post by marielake »

Get other bids. When I sold my house, 2 years ago, I interviewed 3 agents. First one quoted 6%, later came back at 5%, second one quoted 4.5%, and 3rd was 4%. I asked 3rd to match the second. She did and got the job. It was easy money for the realtor, IMO. Rate is very negotiable in a good market area. I'm not one to haggle on price so it really helped to have competing quotes.

I'm in the Boston metro area, a very hot market. Had two offers before brokers open house above asking price and no home inspection contingency.
User avatar
BolderBoy
Posts: 6755
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: How Much To Negotiate Realtor Commission

Post by BolderBoy »

rob wrote:
Dutch wrote:Real estate commission as a percentage of sale price is long overdue for reform imo
Completely agree.... but with the near monopoly it's going to be a tough one to crack.....
Every successful FSBO chips away at it.
PVW
Posts: 807
Joined: Mon Dec 29, 2014 10:01 am

Re: How Much To Negotiate Realtor Commission

Post by PVW »

DSInvestor wrote: The third agent asked for 6% of first 100K then 4% of everything else.
That structure seems to reduce the incentive for the realtor to get you a good sales price. If I were shrewd, I might negotiate a small percentage for the realtor on the expected sales price, plus a large percentage on anything above that. But I'm not shrewd and tend not to negotiate anything.
FlamingoTime
Posts: 118
Joined: Sat Nov 09, 2013 9:01 am

Re: How Much To Negotiate Realtor Commission

Post by FlamingoTime »

We just sold our home in No Va a few months ago. Top realtor has most of the listings in a sought after area of $500 to $650k homes. Another realtor advertises 4.5% commission to try to get business away from top realtor. We interviewed both and when I asked top realtor why I should go with her, because so and so is offering 4.5%, she immediately said that she would match it without me even asking. So, doesn't hurt to try!
mak
Posts: 136
Joined: Wed Sep 02, 2009 2:46 pm

Re: How Much To Negotiate Realtor Commission

Post by mak »

You can specify that you offer 5% as 2% to listing agent, standard 3% to selling agent, and you want the MLS listing to show 3% co-op. If they balk, thank them for their time and you will find another realtor. The reality is about all they do is put it in the computer then wait for someone to call. If it is 5% split 50/50, it shows in MLS as 2.5% co-op, and agents will steer away from showing your house because they get paid less if the client buys that one, vs the one next door which has 3% co-op. The % being paid to the listing agent is not published and the selling agent will have not care.

There are extreme low ball services that will list for 1%, with 3% to selling agent, total 4%, at least here. The listing agent tells you all they will do is put it in the computer, put up a sign, and that's it. And BTW that is often all they do anyway.
epitomist
Posts: 240
Joined: Mon Jul 21, 2014 2:00 pm

Re: How Much To Negotiate Realtor Commission

Post by epitomist »

mak wrote:You can specify that you offer 5% as 2% to listing agent, standard 3% to selling agent, and you want the MLS listing to show 3% co-op. If they balk, thank them for their time and you will find another realtor. The reality is about all they do is put it in the computer then wait for someone to call. If it is 5% split 50/50, it shows in MLS as 2.5% co-op, and agents will steer away from showing your house because they get paid less if the client buys that one, vs the one next door which has 3% co-op. The % being paid to the listing agent is not published and the selling agent will have not care.
Mak, this matches my experience completely. In a softer market, if you are offering less than 3% to the buyer agent then they will steer their valuable buyers to other houses or even encourage them to wait for the "right" house. If it's a seller's market, then FSBO that baby and let the money roll in.

But anything other than a hot seller's market, make sure you offer 3% (or more) to the buyer's agent. For a fun split, offer 5.5% split 3.5% / 2.0% to Buyer/Seller agent and watch the buyer agents tell their clients how "asbestos isn't really that bad - it takes over 30 years on average to get lung cancer" and that "lead paint can actually shield you from outside radiation!"
User avatar
hand
Posts: 2201
Joined: Sun May 17, 2009 8:42 pm

Re: How Much To Negotiate Realtor Commission

Post by hand »

6% as the standard commission is a bit of a myth - especially for higher priced houses.
The Economist, referencing REAL Trends, states average real estate commission in 2011 was 5.4% http://www.economist.com/node/21554204

If house is higher priced, and market is hot, I would be very aggressive in negotiating down from the average.
User avatar
dm200
Posts: 23214
Joined: Mon Feb 26, 2007 1:21 pm
Location: Washington DC area

Re: How Much To Negotiate Realtor Commission

Post by dm200 »

While in multiple ways, I find the percentage of sale price for real estate sales commissions "puzzling" - that is the way the business is set up. We also live in the DC area and our home (purchased in the 1970's) is valued at over $500K - this price in this area is a "starter" for "fixer upper" price. In many (if not most) of the close in suburbs and DC itself - that price may be at the lower end.

What would concern me about "negotiating" a lower (or much lower) percentage for the sales commission is whether lower commission would result in lower efforts and work to get the house sold. So, for example, if a listing agent has many homes listed - might they (or would they) expend more effort on a 6% commission listing than on a 4.5 or 5.0% one? On the purchase side, might not an agent working with prospective buyers be more likely to show homes with the 6% commission than ones lower? I also believe that are large differences in the effectiveness of the listing agents. I believe they run from outstanding to poor (and everything in between). Might not an agent having trouble getting listings (because he/she is not very good/effective) be more willing to agree to a lower commission?

Even IF (and this is a big 'IF") you received the same sales price, but one agent could get the house sold in one month - and another took 3 months - that extra two months on the market almost certainly represents a dollar cost. So, perhaps you might save $5,000 in commissions "negotiating" a lower rate - BUT take more time. What if you saved $5,000 commissions - but it cost you $8,000 more with a delayed sale. More often than not (in my observation) houses that stay on the market tend to end up with lower sales prices.
pshonore
Posts: 8212
Joined: Sun Jun 28, 2009 2:21 pm

Re: How Much To Negotiate Realtor Commission

Post by pshonore »

rob wrote:
Dutch wrote:Real estate commission as a percentage of sale price is long overdue for reform imo
Completely agree.... but with the near monopoly it's going to be a tough one to crack.....
That may be but don't forget all the time Realtors spend with clients who don't buy or listings that don't sell, and they make nothing. If you're buyer, would you prefer to pay, say $100 to be shown a listing? $500 to write a contract, $100 to order an inspection, etc, etc? On the seller side, would you like to pay for the advertising, pay for an Open House, pay $300 for a CMA (comparative market analysis), etc?
User avatar
Majormajor78
Posts: 910
Joined: Mon Jan 31, 2011 8:13 pm

Re: How Much To Negotiate Realtor Commission

Post by Majormajor78 »

When I shopped around I was quoted from a whopping 7% which I talked down to a 5.5%, a couple of 5% and one highly recommended agent that would drop from 5% to 4.5% if I also purchased a house using her services. We went with her last summer and it worked out great for us since she sold our house in less than an month for more than we were expecting to get for it. I'd worry more about the agents experience, aggressiveness, and most importantly integrity than a small difference in cost. Remember this is a single percentage point calculated once, not compounded annually like we discuss in most of the other posts on this forum.
"Oh, M. le Comte, it is only a loss of money which I have sustained... nothing worth mentioning, I assure you."
pshonore
Posts: 8212
Joined: Sun Jun 28, 2009 2:21 pm

Re: How Much To Negotiate Realtor Commission

Post by pshonore »

epitomist wrote:
mak wrote:You can specify that you offer 5% as 2% to listing agent, standard 3% to selling agent, and you want the MLS listing to show 3% co-op. If they balk, thank them for their time and you will find another realtor. The reality is about all they do is put it in the computer then wait for someone to call. If it is 5% split 50/50, it shows in MLS as 2.5% co-op, and agents will steer away from showing your house because they get paid less if the client buys that one, vs the one next door which has 3% co-op. The % being paid to the listing agent is not published and the selling agent will have not care.
Mak, this matches my experience completely. In a softer market, if you are offering less than 3% to the buyer agent then they will steer their valuable buyers to other houses or even encourage them to wait for the "right" house. If it's a seller's market, then FSBO that baby and let the money roll in.

But anything other than a hot seller's market, make sure you offer 3% (or more) to the buyer's agent. For a fun split, offer 5.5% split 3.5% / 2.0% to Buyer/Seller agent and watch the buyer agents tell their clients how "asbestos isn't really that bad - it takes over 30 years on average to get lung cancer" and that "lead paint can actually shield you from outside radiation!"
I think any broker who agreed to those terms would soon find a total lack of "cooperation" from other agents. And how would they find out? Probably from the HUD-1 settlement statement.
epitomist
Posts: 240
Joined: Mon Jul 21, 2014 2:00 pm

Re: How Much To Negotiate Realtor Commission

Post by epitomist »

pshonore wrote:I think any broker who agreed to those terms would soon find a total lack of "cooperation" from other agents. And how would they find out? Probably from the HUD-1 settlement statement.
So the fact the a seller agent is willing to take 2% while giving a buyer agent 3.5% is somehow supposed to anger other agents? That doesn't make sense.
pshonore
Posts: 8212
Joined: Sun Jun 28, 2009 2:21 pm

Re: How Much To Negotiate Realtor Commission

Post by pshonore »

Sorry, I read it reversed, (seller got 3.5, buyer got 2%) That's even funnier. I cannot imagine why a selling agent would ever agree to that.
randomguy
Posts: 11295
Joined: Wed Sep 17, 2014 9:00 am

Re: How Much To Negotiate Realtor Commission

Post by randomguy »

PVW wrote:
DSInvestor wrote: The third agent asked for 6% of first 100K then 4% of everything else.
That structure seems to reduce the incentive for the realtor to get you a good sales price. If I were shrewd, I might negotiate a small percentage for the realtor on the expected sales price, plus a large percentage on anything above that. But I'm not shrewd and tend not to negotiate anything.
There isn't much of an incentive either way. The difference between no sale and the commission on a 1 million dollar place is huge. The difference in commission between a 1 million dollar and 1.1 million dollar sale is much smaller. It isn't in the agents best interest to risk the sale to make an extra 2 or 3k when 20-30k is on the line. Better off to sell off that house and move on to the next one.
mak
Posts: 136
Joined: Wed Sep 02, 2009 2:46 pm

Re: How Much To Negotiate Realtor Commission

Post by mak »

I don't buy into that any more than the argument that "I don't discount my rates because I don't discount my exceptional personal service." Thanks buddy, I'm moving on. There were 10,000 licensees in my market in the bubble, today about 3,000. Selling agents are focused on one thing, selling houses to earn commissions. If a house is listed with 3% co-op, properly priced and good value, it doesn't matter to them who the listing agent is, they will show it. If they don't believe me the next guy will and it will get sold.

I find my own listings anyway when buying, and usually make offers thru the listing agent so he's motivated to act against his client's interest and push for my all cash offer to be accepted, because then he gets both sides of the commission. Personal gain trumps client interests, money buys influence. And it works. Often they advise their client that my lower offer is better than the higher one from someone else, perhaps with financing or some other technicality, but I know the real motivation. I had one listing agent representing a bank in an REO sale say their bank didn't like to see them getting both sides of the commission, it looked unseemly, but hey why don't I make the offer thru their pal instead...then pushed the deal, bank accepted my offer 3rd lowest price, and everyone got paid. Bank probably could have done better. I of course cannot know for sure but think money or favors were exchanged from the pal to the listing agent to compensate for the easy commission they both engineered.
goblegoble
Posts: 47
Joined: Wed Feb 18, 2015 1:52 pm

Re: How Much To Negotiate Realtor Commission

Post by goblegoble »

How big is the neighborhood? How many other homes are listed for sale on the market in that 'hood? How long are homes staying on the market there? How do you realistically grade your home in comparison to similar homes for sale? Would you buy your house again over others? I would suggest trying FSBO for two to three weeks (or longer if you can afford that time) offering a 2% commission to buyer agent for bringing a buyer and helping close the transaction. Make sure to price your home aggressively out of the gate since you are saving some commission dollars. Post on zillow, redfin, trulia (think zillow owns them?), craigslist. I sold my home as FSBO last year and paid 1% commission to buyer agent who helped close (~$4k) after listing it with a realtor for 6 months.

I agree with sentiments around needing to disrupt the way homes are bought and sold. It's a scam!

Good Luck!
SQRT
Posts: 1792
Joined: Sat Feb 05, 2011 8:44 am

Re: How Much To Negotiate Realtor Commission

Post by SQRT »

When we bought our house in Paradise Valley, Arizona 3 years ago the total commission, paid by the seller was 6% split evenly between buyer and selling agent. This seemed high to me on a quite expensive house. Funny thing is we found the house ourselves and emailed the selling agent. She didn't respond so we eventually found an agent who arranged the viewing and eventually helped us negotiate the price. If the listing agent had just answered her email, she would have likely gotten both sides of the sale. This cost her and her agency 6 figures.
fanmail
Posts: 563
Joined: Thu Sep 20, 2012 5:54 pm

Re: How Much To Negotiate Realtor Commission

Post by fanmail »

SQRT wrote:When we bought our house in Paradise Valley, Arizona 3 years ago the total commission, paid by the seller was 6% split evenly between buyer and selling agent. This seemed high to me on a quite expensive house. Funny thing is we found the house ourselves and emailed the selling agent. She didn't respond so we eventually found an agent who arranged the viewing and eventually helped us negotiate the price. If the listing agent had just answered her email, she would have likely gotten both sides of the sale. This cost her and her agency 6 figures.
:shock:
congrats
SQRT
Posts: 1792
Joined: Sat Feb 05, 2011 8:44 am

Re: How Much To Negotiate Realtor Commission

Post by SQRT »

fanmail wrote:
SQRT wrote:When we bought our house in Paradise Valley, Arizona 3 years ago the total commission, paid by the seller was 6% split evenly between buyer and selling agent. This seemed high to me on a quite expensive house. Funny thing is we found the house ourselves and emailed the selling agent. She didn't respond so we eventually found an agent who arranged the viewing and eventually helped us negotiate the price. If the listing agent had just answered her email, she would have likely gotten both sides of the sale. This cost her and her agency 6 figures.
:shock:
congrats
Actually, I calculated it wrong. More like mid 5 figures for the half she didn't get. Sorry.
staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: How Much To Negotiate Realtor Commission

Post by staythecourse »

goblegoble wrote:How big is the neighborhood? How many other homes are listed for sale on the market in that 'hood? How long are homes staying on the market there? How do you realistically grade your home in comparison to similar homes for sale? Would you buy your house again over others? I would suggest trying FSBO for two to three weeks (or longer if you can afford that time) offering a 2% commission to buyer agent for bringing a buyer and helping close the transaction. Make sure to price your home aggressively out of the gate since you are saving some commission dollars. Post on zillow, redfin, trulia (think zillow owns them?), craigslist. I sold my home as FSBO last year and paid 1% commission to buyer agent who helped close (~$4k) after listing it with a realtor for 6 months.

I agree with sentiments around needing to disrupt the way homes are bought and sold. It's a scam!

Good Luck!
I am not sure why anyone would not at least TRY to sell their house themselves at least for the first 30 days? The hardest part is just dealing with the phone calls and setting up showing off the house. With email and cell phones I am not sure how much work that would take. Just get a prepaid cell phone and separate email account and use it exclusively just for the house stuff. Try to show the house when you are off (evenings/ weekends) as that is the same time that is likely to be convenient for the buyer as well. Either way after 1-2 visits the rest is just emails back an forth. You can easily hire a person to run comps. and will need a real estate attorney either way.

In no way am I trying to slight real estate agents, but think if it is worth trying it on your own to see if one can save THOUSANDS of dollars on a single transaction. Think if a single buy of stocks cost thousands in commissions wouldn't you see if you can do it cheaper?

Now if you don't have a competitive house, competitive neighborhood then it is a different story where the experience of the real estate agent comes in.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
tim1999
Posts: 4205
Joined: Tue Dec 16, 2008 6:16 am

Re: How Much To Negotiate Realtor Commission

Post by tim1999 »

In my area, 6% (3% + 3%) is standard, but most agents will quickly accept 5% when you list the house if you ask them. They probably figure if they don't accept 5%, some other agent will. I've hardly ever heard of anything below 5% unless it's one of those brokerages that doesn't use the MLS.
User avatar
SteelyEyed
Posts: 389
Joined: Sun Jun 14, 2009 10:34 am

Re: How Much To Negotiate Realtor Commission

Post by SteelyEyed »

The book "Freakonomics" has a chapter on real estate commissions. If I remember correctly, realtors basically add no value to the process, other than convenience. The percentage of sale commission structure provides an incentive that works as a conflict of interests, preventing the seller from getting a better price. An extra $10,000 selling price only gets the agent $10,000 * .06 = $600, which they then have to split with the buyer's agent, so it is only $300. Then, if part of an agency, something like half goes to the owner, so it is only $150. While $10,000 may mean a lot to the seller, $150 is meaningless to the agent, so they are incentivized to just make the quickest sale possible and move on to the next deal.

I will FSBO when I move next.
renter
Posts: 562
Joined: Sat Aug 23, 2008 2:14 pm

Re: How Much To Negotiate Realtor Commission

Post by renter »

I would strongly consider Redfin. I used Redfin when I bought my house, and it was a terrific experience, plus $12k in my pocket within days of closing, with a letter saying it wasn't taxable income per an IRS ruling. Paid for all new appliances. I will use them again..
randomguy
Posts: 11295
Joined: Wed Sep 17, 2014 9:00 am

Re: How Much To Negotiate Realtor Commission

Post by randomguy »

staythecourse wrote:
I am not sure why anyone would not at least TRY to sell their house themselves at least for the first 30 days? The hardest part is just dealing with the phone calls and setting up showing off the house. With email and cell phones I am not sure how much work that would take. Just get a prepaid cell phone and separate email account and use it exclusively just for the house stuff. Try to show the house when you are off (evenings/ weekends) as that is the same time that is likely to be convenient for the buyer as well. Either way after 1-2 visits the rest is just emails back an forth. You can easily hire a person to run comps. and will need a real estate attorney either way.

In no way am I trying to slight real estate agents, but think if it is worth trying it on your own to see if one can save THOUSANDS of dollars on a single transaction. Think if a single buy of stocks cost thousands in commissions wouldn't you see if you can do it cheaper?

Now if you don't have a competitive house, competitive neighborhood then it is a different story where the experience of the real estate agent comes in.
No the hard part is getting people to show up. If your not paying the buyers agent, they are not going to bring clients. And most buyers have agents. And listing your house FSBO isn't free assuming you want to be in MLS. And finally the other side knows that you are not paying a commission. First thing they do is drop their offer by 6%:)

If your in a market where if you put a sign in the front yard and have 4 offers after an open house, FSBO works great. Most sales don't happen in those markets.
cherijoh
Posts: 6591
Joined: Tue Feb 20, 2007 3:49 pm
Location: Charlotte NC

Re: How Much To Negotiate Realtor Commission

Post by cherijoh »

marielake wrote:Get other bids. When I sold my house, 2 years ago, I interviewed 3 agents. First one quoted 6%, later came back at 5%, second one quoted 4.5%, and 3rd was 4%. I asked 3rd to match the second. She did and got the job. It was easy money for the realtor, IMO. Rate is very negotiable in a good market area. I'm not one to haggle on price so it really helped to have competing quotes.

I'm in the Boston metro area, a very hot market. Had two offers before brokers open house above asking price and no home inspection contingency.
Huh? Did you reverse those percentages? Otherwise I'm confused why you would ask the third (at 4%) to match the 2nd (at 4.5%).
User avatar
rob
Posts: 5247
Joined: Mon Feb 19, 2007 5:49 pm
Location: Here

Re: How Much To Negotiate Realtor Commission

Post by rob »

pshonore wrote:
rob wrote:
Dutch wrote:Real estate commission as a percentage of sale price is long overdue for reform imo
Completely agree.... but with the near monopoly it's going to be a tough one to crack.....
That may be but don't forget all the time Realtors spend with clients who don't buy or listings that don't sell, and they make nothing. If you're buyer, would you prefer to pay, say $100 to be shown a listing? $500 to write a contract, $100 to order an inspection, etc, etc? On the seller side, would you like to pay for the advertising, pay for an Open House, pay $300 for a CMA (comparative market analysis), etc?
Simply I just don't care about them shifting costs from their failures to me as a seller. What does the percentage have to do with work effort? Your examples show the cost is not percentage of the selling price :D

To your question: I would prefer a company to package a set of those for a set price with extensions if it does not sell in the first block of time. The real issue is access to MLS.
| Rob | Its a dangerous business going out your front door. - J.R.R.Tolkien
Post Reply