You thought you got a good deal on that home... until you factored in the commission and extras. Should brokers cut their commissions? Most will tell you they're worth it, but here's why I think they need a shave.
Traditionally, a home seller pays out 6 percent in commissions, split evenly between the selling agent and the buyer's agent. If you don't have a lot of equity in your home, the commissions and closing costs alone can put you in the red on the whole deal.
It pays to be a shrewd negotiator. And the rules aren't set in stone. As a seller, you don't have much control over the buyer's agent, but you can always try offering a 2 or 2.5 percent commission and see how many agents come calling. According to National Association of Realtors, the buying agent was compensated by the seller approximate 65 percent of the time. A third of the time, either the buyer paid for their agent or the buyer and the seller split it somehow. There are a few ways to split that nut, but in a weaker market, you usually need to incent the buyer's agent with a full 2.5-3 percent commission.
On the other side of the transaction, the selling agent is your employee, and only gets paid if and when you sell, so you should be aggressive in asking them to reduce their commission if you feel it's appropriate.
Here are some of the more compelling reasons why a selling agent might be willing to cut their rate: 1. You Are Truly 'Motivated'
Some sellers put their homes on the market and don't care if it takes a year for it to sell. This is a lot of effort for the agent with no promise of getting paid. If you can convince your agent that you truly intend to close the sale within 90 days or 120 days or six months, then they can evaluate if a lower commission is worth it.
2. Make It Up to Them on the Back Side
If you will be buying another house in the same area, you can promise to give the agent the full 3 percent on that transaction, or perhaps 2.5 percent on both deals. Or, ask for a lower commission or rebate when you buy. Either way, the agent should make more money than if you just give them the 3 percent on your sale and then find a new agent. If you are moving out of the area, they may be able to get some kind of referral fee for doing little or no work.
See the Other Side of This Argument: Your Broker Is Worth It
3. You'll Send Them More Business
According to the National Association of Realtors, 43 percent of buyers found their agents through referrals from friends and family. Eleven percent used the same agent they had used before. Add it up, and you represent roughly 54 percent of how this agent will get their future business.
4. You Have Other Options
Find out if discount brokers such as Redfin or ZipRealty are available in your area. They often work either for a flat fee or for a rebate on commission, so at least you have something to compare against your regular agent.
5. You Do the Dirty Work
A recent L.A. Times article mentions the idea of "pre-staging" your home. The idea is that, if your agent shows up to view your home and it's a mess, the agent is likely to assume he'll have a hard time selling your house, and therefore will insist on a higher commission. Try to make it look like the easiest sale he'll ever have.
6. It's All Relative
If your agent sells six homes per year, each of which are worth $500,000, she "grosses" $90,000 in commissions. If your home is worth slightly more than average, the agent may be willing to give you a break on the commission, as she'll make roughly the same amount even at 2.5 as at 3 percent. Or, if your house is relatively cheap for an area, she may think she can sell it quickly.
7. You Are Willing to Admit You Are Wrong
You may think your home is going to sell for full price after one open house, but you wouldn't be the first seller to overestimate their home's value. Your agent may agree to sell your house on a lower commission if you do everything that is asked and if you sell it within 45 days. If it doesn't sell after that time, your agent is going to have to do another open house, etc, so there's a justification to pay the higher commission. Unfortunately, you will probably be reducing your price at the same time.
If you are easy to work with, agents will bend over backwards to keep you happy, including cutting their commissions. But if you ask them to get paid less, you should expect them to do less, and you may have to make up the difference yourself.
One additional thing to note: Your agent doesn't pocket the whole commission: it is split with the boss, usually at 50/50. So the agent may not even have control over what they can charge.