Real estate agents play a very important part in the home-buying and home-selling processes. Their expertise, education, and skills help those selling and buying homes make the best decisions possible for their families.
However, these experts don’t work for free. They are paid a percentage of the total selling price of the home as commission for all the work they put in. But can you negotiate real estate commission? The short answer is yes, but there are some important points and things to know before negotiating.
With that in mind, this guide will cover negotiating realtor fees, the standard commission structure, and who is in charge of paying these commissions.
The Standard Real Estate Commission Structure in the United States
Before we dive deep into how to negotiate, it is crucial to understand the standard commission structure in the U.S. While it can vary slightly, commissions for real estate agents are normally between 5% and 6% of the total selling price of the home. If you’re wondering, “Are real estate commissions negotiable?” the answer is yes—but if you try and pay lower than this range, you might experience some pushback.
This percentage is split between both the listing agent (the agent who assists in listing and selling the home) and the buying agents (who helps the buyers make the right choice). Normally the commission is split relatively equally between the two. It’s also not uncommon to see a 2.5% buyer’s broker commission split.
So how much does the average realtor make from these commissions? Well, it depends on how much a home sells for and where the agent is located. If we take the national median home price of $440,300, the typical commission on a home sale will be between $22,015 and $26,418, to be split between the listing and buying agent.
Different states have different averages, so the amount paid can vary greatly from one place to another. For example, Massachusetts (with an average commission rate of 4.84%) will have average commissions of about $21,310 on the same $440,300 home. On the other hand, if a home sells for that same price in Ohio (which features the highest average rate of 5.81%), there would need to be around $25,581 paid in commissions.
Who covers the commissions in a real estate transaction?
If you’re a buyer, you might be worried about whether or not you can afford to cover the commissions on top of things like the down payment, mortgage application fee, and other closing costs. The good news is the real estate commissions are typically covered by the seller at closing, unless otherwise noted in the purchase agreement. The seller will pay not only their realtor but also the buying agent. While it is the seller that pays both agents, most sellers work the cost of these commissions into the overall price of the home.
Tips for How to Negotiate Real Estate Commission
1. Determine Your Leverage
One of the first tips when negotiating commission is to determine how much leverage you have. The more leverage you have as a seller, the easier it is for you to negotiate. For example, if you live in a hot market, your home is desirable, it is the off-season, or the agent is quite new to the industry, you may be able to negotiate the commission lower.
2. Know Your Area
When you are trying to learn how to negotiate real estate commissions, it is also important to familiarize yourself with the standard commission rate in your area. The more you know about your market and what most people are paying, the smoother your negotiations will go, as you will have a baseline.
3. Consider Referrals
Referring the agent to your friends or family members who are also selling or buying homes can net you a better real estate commission rate. Referrals and relationships with clients are incredibly important in real estate, so if you can provide an agent with more clients, it’d be much easier to negotiate the commission.
4. Make Your Home Easier to Sell
When it comes to negotiating with real estate agents, it helps to try and make your home as easy to sell as possible. One of the main goals that agents have is to sell your home quickly and for the best price. The better your home is, the easier the agent’s job will be, and the easier they will be to negotiate with.
There are plenty of ways to help your real estate agent sell your home, from improving the curb appeal, to making necessary repairs and improvements, to cleaning it up, and even paying for the inspection of your eventual buyer.
5. Become a Repeat Customer
Offering to use the agent to both buy and sell a home can also sweeten the pot and make the agent more likely to lower the commission. Agents love repeat customers, so becoming one can often get you a great deal as most agents would rather have enough entire deal over nickel and diming when it comes to their commission.
6. Do Your Homework
Lastly, doing your homework and speaking with several different real estate agents is a good idea. If you simply work with the first agent you speak to, you might be leaving a better offer on the table. You should aim to interview at least three to see which fits your needs the best.
Every agent or agency is different, and some may be more flexible on commissions than others. Also, if an agent learns that you are leaning elsewhere due to a more flexible or better commission rate, they might be willing to move a little bit from their original ask.
Negotiating real estate commissions is certainly possible and can be a great way to reduce your closing costs. While it’s likely impossible for your seller’s agent to completely waive the commission, by using the right techniques, you can make your negotiation as successful as possible and shave off a few thousand dollars.