When selling a house with the help of a real estate agent, that 6 percent real estate commission can eat into any profit the seller might receive from the sale. In today’s depressed real estate market, that fee could even result in an overall loss. Even with the funny accounting used when people sell their homes — the accounting that doesn’t consider all the costs of owning and selling a home as part of the cost basis — in a bad market, it’s difficult to show even a fake profit.
Banking Deal: Earn 1.55% APY on an FDIC-insured savings account at CIT Bank.
Who pays real estate commissions
That standard 6 percent commission is paid by the seller to the real estate broker, who often splits the fee between itself, the seller’s agent, the buyer’s agent, and possibly another agent on the seller’s side if they had additional assistance with the listing. Even with the agent seeing possibly only 3 percent of the total sales price, good real estate agents could make a living. Better agents can negotiate better arrangements with their brokers, and receive more than this share.
For the seller, this commission is a big expense. Many agents are willing to negotiate the real estate commission. If the seller is willing to compromise with the agent and perhaps do some of the legwork involved with the process, many agents will work with the seller to come up with a reasonable fee.
Negotiating real estate commissions
One reason that agents are willing to negotiate is that it is become easier for sellers to sell houses without the help of an agent. If a seller is just looking for a listing and is willing to show the house without an agent and the property is in New York City, RealDirect will charge a monthly fee of $395 or a commission of 1 percent for distributing the listing. Even with these smaller fees, the seller’s agent must still be paid, so there is an additional commission of 2.5 to 3 percent to consider. Still, this is a better deal than real estate agents offer sellers, but it’s only worthwhile to sellers who are confident in their ability to close the deal.
More low-cost do-it-yourself services like ZipRealty put pressure on agents to compete with lower prices as well.
If you’d prefer a full service broker but still want a reduced price, be willing to shop around. While agents are more likely to be willing to reduce their commissions if your home has a high value, today’s slower real estate market means the agents who haven’t given up their job are competing for fewer salable properties. Talk to several agents from different brokerages and ask for a reduced rate from each. The more agents you speak with, you’ll be able to have a better who will do the best work for you at the best rate.
By law, commissions must be negotiable; otherwise, the industry would be guilty of price fixing. The 6 percent commission is ingrained in the collective consumer consciousness, and that’s the way real estate brokers like it.
Even reducing a commission by 1 percentage point could save thousands of dollars. Not exploring reduced commissions would be a sign of financial mismanagement. I understand that for a large transaction, a 1 percent point difference might seem negligible, but this is real money you can save, thousands of dollars, just by shopping around and negotiating. This is not saving two cents a gallon by driving out of your way to an off-brand gasoline station; this has an immediate impact on your finances.
Updated April 13, 2016 and originally published July 29, 2011.