As much as real estate has changed in recent years, one aspect that has long appeared set in stone is the traditional 6 percent commission.
Commissions may vary slightly by locality, but for decades they have been presented as a non-negotiable reality for sellers who use a traditional real estate agent. The reality, however, is that these real estate agents often negotiate commissions.
“To say that they’re not being negotiated is false information,” says Sissy Lappin, a real estate broker in Houston and founder of ListingDoor.com, which provides marketing tools to sell your home without an agent. “Over 80 percent of homes are not paying a 6 percent commission. This is the reality of the new real estate market.”
Traditional real estate brokers are facing competition from new discount models, which provide tools and access to the multiple listing service for homeowners who want to sell their homes themselves or allow homeowners to buy real estate services a la carte. And buyers and sellers are no longer dependent on agents to determine the value of their homes or to find out which homes are for sale. That is putting pressure on commission rates.
“We have a huge shift in culture,” Lappin says. “I think the consumer is so much more confident than they were even five years ago.” Plus, she says agents do less legwork than they did in the pre-internet age. Selling agents, for example, are more likely to put keys in lockboxes rather than personally attend when buyers’ agents show the home, and showing appointments now can be set up with automated systems rather than by playing phone tag with other agents. “There’s a lot less work involved in the transaction.”
“In a market like Seattle, you’d be stupid not to take it because [the home] will be sold within days,” says Matt Parker, a broker with Keller Williams Puget Sound in Seattle. “We can’t profess that there’s a standard.”
Parker says his clients are often more interested in finding a real estate agent who can secure the highest price for their home than they are in negotiating lower commissions. “In my market, people aren’t worried about their $2,500 (commission savings),” Parker says. “They’re worrying about making an extra $30,000. Pricing is so high right now that sellers really want an agent that’s going to get them a higher price.”
While even top agents may be willing to negotiate commissions under certain circumstances, experts caution that the lowest commission won’t necessarily yield the best results because the level of experience and expertise among agents varies so widely.
“They need to be very careful,” Parker says. “For certain things, there’s a lot of expertise that you need. To go straight for people who are willing to negotiate is particularly ill-advised.”
You need to make sure the agent is competent and is going to market your home well. Ask about who will show the home (your agent or the buyers’ agent), whether professional photos are included in the package and how your home will be marketed to prospective buyers. “You don’t have a second chance to make a good impression,” Lappin says.
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You also want to make sure your agent works full time in real estate, knows your neighborhood and receives high marks from previous clients. While agents who are newer or do less business may be more willing to take a lower commission, the risk is they might not do as good a job. “We’ve got a huge problem in real estate right now of people who do not know what they’re doing,” Lappin says.
Agents are more likely to discount the commission if the home is more expensive, if they think it will sell quickly and if the transaction is likely to be straightforward. The strength of the local market is also a factor. Sometimes the individual agent makes the decision, but other times it’s up to the brokerage, which traditionally gets between 10 and 50 percent of the commission.
“High-priced homes will often see lower commissions,” says Doug Perlson, founder and CEO of RealDirect.com, a hybrid of a for-sale-by-owner site and traditional real estate brokerage. “When the stakes are higher, brokers are more willing to negotiate. ... There’s definitely more negotiating at the high end.”
In communities where the real estate listing site Redfin is active, buyers and sellers often ask agents if they will match Redfin’s prices. Redfin offers effective 4.5 percent commissions for sellers and commission rebates to buyers. But the company won’t list or show homes below a certain price (which varies by city).
While most agents and brokers will at least sometimes accept a lower commission, don’t expect a rock-bottom deal. Lappin suggests starting at 4.5 percent and raising the commission to 5 percent if the home doesn’t sell in the first 30 days.
“Whatever the commission is you want your agent to feel good about it,” Parker says. “You want then to be working as hard or harder. … Ask them if they can sharpen their pencils, but only to a point where they feel highly motivated to sell the property.”
Sellers who don’t have much equity are particularly sensitive to the size of the commission, which may be as much as they’ll take home from the sale. If you find that good agents in your community won’t grant a substantial commission discount, you could consider negotiating for a la carte services, such as using an agent solely to negotiate a contract with a buyer you find yourself, or using one of the hybrid models where you do some of the work yourself.
“Personally, I think the 6 percent commission is history,” Lappin says. “It’s a new standard in every transaction.”