Stephen Brobeck, PhD, senior fellow and former executive director of the nonprofit Consumer Federation of America, Washington, DC. He is author of several Consumer Federation studies on real estate brokerage. ConsumerFed.org
Home sellers in the US typically pay a 5% or 6% commission—usually split between the home seller’s real estate agent and the buyer’s agent. That’s a staggering payment of $25,000 or $30,000 to sell a $500,000 home—as much as buying a car. For comparison, home sellers in England typically pay as little as 1%, which would be $5,000 for a $500,000 home.
If you want to save some money when selling your home, the best strategy is to attempt to negotiate a lower rate. These attempts won’t always work, but it’s worth trying—you could save thousands of dollars with just a few minutes of effort.
Real estate agents are most likely to accept lower commissions if one or more of the following are true…
Your home is especially valuable. If you live in an attractive real estate market with a home worth $750,000 to $1 million or more, an agent can take a lower percentage and still make more than he/she would by selling a less valuable home for full commission.
The local real estate market is hot. If homes are being snapped up quickly in your area, agents can afford to take less because it probably won’t require much of their time to make the sale.
You’re both selling a property and buying a new one in the same area. If you agree to both buy and sell with the same agent, you’re generating two commissions for him.
Large “discount brokers” are a force in the area. A few real estate agencies, including Redfin and Trelora, charge below-standard commissions as a matter of policy. If you see lots of listings and for-sale signs in the area from discount agencies such as these, it increases the odds that other local agents will be willing to negotiate their own rates to remain competitive.
How—and with Whom—To Negotiate
The key to negotiating real estate commissions is to ask multiple agents for a lower rate before signing a listing agreement with anyone. Only about 27% of agents are willing to negotiate down from the standard commissions, according to a 2019 study by the nonprofit Consumer Federation of America, so if you ask only one, your odds aren’t great. But ask four or more, and your odds improve dramatically.
It’s up to you to raise the subject of commissions—agents almost never mention this if they can avoid it. If your home is more valuable than most in the area and/or you can sell and buy through the same agent, raise these topics before discussing commissions to make sure that the agent has as much incentive as possible to agree to a lower commission. If an agent says he won’t accept less than the standard rate, say you’ll keep him in mind but that you have several other agents who you’re going to contact before making your decision.
If an agent is willing to lower his commission, it is most likely to be by one-half to one percentage point, which would be $2,500 or $5,000 for selling a $500,000 home. Larger reductions are unlikely because listing agents don’t actually pocket all of that money—half of the commission typically goes to the buyer’s agent.
Finding four or more real estate agents who are worth calling can be challenging. Start by asking people you trust who live in your area whether they had a good experience with a local agent. But don’t stop when you get one appealing recommendation, as most people do. Keep asking around until you have at least four. Look up each recommended agent on Zillow.com before making contact. The Consumer Federation studied the agent reviews and information provided by five real estate–related websites and concluded that Zillow’s are the most useful. As with other online customer reviews, some could be fake, so put the greatest weight in long reviews—positive or negative—that provide specific details, which are more likely to be legitimate rather than brief reviews that are glowing but lacking in specifics.
Use Zillow to confirm that each agent has sold multiple homes within the past year…that these homes sold for close to their listing prices…and that the agents have been working in the area for at least a decade. Examine the photos and video included on each agent’s current listings. Are these visually attractive compared with the ones on other listings…or do they seem amateurish? The quality of photos and videos truly does influence buyers—all the more so during this pandemic, when it can be difficult for buyers to tour homes in person.
Warning: Never use online real estate agent recommendation/rating websites such as TopAgentsRanked.com and EffectiveAgents.com to choose an agent. Most sites like these actually just recommend whichever agents agree to pay the referral site a slice of their commission. The best agents in an area are almost never willing to pay these sites.
If a discount real estate brokerage is active in your area, proceed with caution. While it may offer rates as low as 1%, discount brokerages often hire relatively inexperienced agents and those agents might put limited time and effort into marketing homes than other agents. Still, if a discount broker’s agent seems appealing after investigating him on Zillow as described above, this could be a viable option, especially in a hot real estate market.
When an Agent Agrees to Take Less
Before committing to work with an agent who agrees to take less than the standard commission…
Confirm that the reduction will be entirely from the listing agent’s share of the commission. As noted above, sellers’ agents traditionally split commissions down the middle with buyers’ agents. But when a seller’s agent agrees to take less than the standard commission, it’s best for you if the buyer’s agent still receives his/her standard amount. Buyer’s agents tend to steer clients away from homes that offer less than the standard buyer’s agent commission. Example: If the standard commission in your area is 6% but you find an agent willing to work for 5%, confirm that this means your agent will take 2% and offer buyers’ agents 3%.
Confirm that the agent will not spend less marketing your home because of the lower commission. If his other listings feature open houses, slick professional photos and online virtual tours, yours should, too.
Ask, “What commission would you accept if in the end you represent the
buyer as well as me?” It’s reasonable to request especially attractive terms if the agent does not have to split his commission with a buyer’s agent. Representing both seller and buyer, called “dual agency,” is not permitted in Alaska, Colorado, Florida, Kansas, Maryland, Oklahoma, Texas and Vermont, however.
Example: An agent might agree to reduce his commission from 6% to 5.5%…and drop it again to 5% if he also represents the eventual buyer.
Commissions for Buyers
Commissions can affect home buyers even though they don’t directly compensate their agents. How? Buyer’s agents sometimes nudge clients toward properties being sold by their own firms so that the company can double-dip on commissions…and/or steer them away from properties that offer less than the standard commission.
Before contacting buyer’s agents, skim through home listings on a real estate website such as Zillow or Trulia to find a few properties that seem to meet your needs. Jot these down, then call an agent you’re considering. During the conversation, ask about these specific properties. If the agent steers you away from these listings and toward other properties, look up the properties that he mentions on Zillow or Trulia—if they’re offered only by this agent’s firm, find a different agent.
In some areas, buyers will come across “discount buyer’s agents.” These discounters refund a portion of the commissions they receive, often called a “commission rebate,” back to their clients. This can be a viable money saver for buyers who are very confident in their ability to evaluate real estate, but less experienced buyers should proceed with great caution—many discounters have limited experience and/or provide less hand-holding when it comes to deciding how much to offer for properties…spotting problems with properties…and closing real estate deals. These discounters are not in every market and are not legal in Alabama, Alaska, Kansas, Louisiana, Mississippi, Missouri, Oklahoma, Oregon and Tennessee…and Iowa prohibits rebates if two or more brokers are used for the transaction.