6% Real Estate Commission - What You Need to Know
If you’re looking at selling your home, you know that there are a few key expenses involved. One of them, of course, is the 6% commission that you’ll pay to the real estate agent (or agents) who facilitate the sale. However, that 6% payout can really eat into any profit you might receive from the sale.
Even in today’s mostly-recovered real estate market, that fee could even result in an overall loss. So, are there any ways around paying that 6% fee, and why is it standard in the first place?
Who Pays Real Estate Commissions?
The standard 6% commission is paid by the seller to the real estate broker. Depending on how the home is sold, the brokerage often splits the fee between itself, the seller’s agent, and the buyer’s agent. Occasionally, this fee is even split with yet another agent on the seller’s side, if they had additional assistance with the listing.
Even if the seller’s agent sees only 3% of the total sales price in the end, that can still make for a very good living. Depending on the homes sold and how often a sale happens, good agents can easily make six figures or more each year in commissions. Better agents can negotiate better arrangements with their brokers, and receive even more than this share.
For the seller, though, this commission is a big expense. When selling a $400,000 home, for example (which is lower than the average home sale price in my area), the total commission amount would be $24,000. If you lower the cost of your home in negotiations, make improvements before putting the home on the market, and don’t have a significant amount of equity built up, this can easily eat into any profits you may have seen.
Luckily, some real estate agents are willing to negotiate on the 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
If you’re vying for a commission lower than 6%, you’re not alone. In fact, Real Trends, a research and advisory company for the real estate market, found that in 2015, real estate commissions averaged only 5.26% across the country. This may be less than 1% of a difference, but that equates to thousands of dollars saved in the end.
One reason that agents are willing to negotiate the 6% fee today? It has become easier than ever for owners to sell their home without the help of an agent.
Let’s take a homeowner in New York state, for example. If a seller is just looking to post a listing and is willing to show the house without an agent, companies like RealDirect can help. They will charge a monthly fee of $395 or a commission of 1% for distributing the listing, making it visible to buyers and other agents alike.
Even with these smaller fees, though, the buyer’s agent must still be paid. So, there is an additional commission of 2.5 to 3% to consider. This is a better deal than going the standard 6% route with a seller’s agent–potentially saving you tens of thousands of dollars in the long run. However, it’s only worthwhile to sellers who are confident in their ability to close the deal.
Other 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. Agents are typically more willing to reduce their commissions if your home has a high value, and if you’re willing to do some of the legwork. Talk to several agents from different brokerages and ask for a reduced rate from each. The more agents you speak with, the better chance you’ll have to find the rate you want while still getting the service you need.
There is a fine line: you want to save money on the commission if and where you can, but not at the expense of you home’s sale. If cutting expenses is important to you, just make sure that you’re not choosing a low-cost agent that won’t get your home sold (or won’t get the price you need).
What Is Possible?
By law, real estate commissions must be negotiable. Otherwise, the industry would be guilty of price fixing. However, the 6% commission is ingrained in the collective consumer consciousness–and that’s the way real estate brokers like it.
Even reducing a commission by one percentage point could save sellers thousands of dollars–and cost brokerages the same. As a homeowner, not exploring reduced commissions would be a sign of financial mismanagement. On a large transaction, a 1% point difference might seem negligible, but this is real money you can save–thousands of dollars–just by shopping around and negotiating.
Negotiating your commission fee by a percentage point (or even less) is not the same as saving two cents a gallon by driving across town to a cheaper gas station. This percentage point difference can have an immediate, and significant, impact on your finances. It’s always worth the effort to at least try, when you’re trying to sell your home with an agent.