what is a reasonable RE commission discount and how to approach
Hayward, CA · Member since 2016 · 100 posts · 15 votes
what is a reasonable RE commission discount and how to approach
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Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
9yMaybe we have left money on the table. But generally I have been of the belief that working with a realtor who specializes in investments that their commission is well worth the money.
Our real estate agent has given us recommendations on when to pass on properties and when they think we are onto a good deal.
Maybe our business model is different than most, but I dont want to be transnational with my suppliers, I really want to focus on being collaborative. Think about it this way. Yeah, maybe you can pay 4% instead of 6% on a 200K property...call it $4K in savings.
What happens the next time that agent comes across a deal that is $50K under market? do you think they go to you? or someone who is paying a larger commission?
Our last deal was just that, our agent called us with a property that fell out of contract right before Thanksgiving. She was able to help us get it about $35-40K less than the sellers paid for it earlier in the year. If we were beating her up over the commission, my guess is she might have to one of her other investors.
I have also had our agent eat costs that might otherwise have gone to us. My agent in the past has hired a traveling notary to save a deal that was at the 11th hour. Another time she paid for a contractor to create an access door to a condo crawl space so that a closing could happen.
Several times our agent has made us thousands of dollars by negotiating higher (or lower) sales prices paying for the full cost of their commission.
I'll take the deal and pay a little more in commission. Maybe if we start doing large volumes we might work on amending terms with our investor, but as a fairly new investor, I want to be the client who they are first to bring deals..
16 Replies
- Real Estate Broker · Manchester, NH · Member since 2014 · 630 posts · 420 votes9y
Depends on how valuable the agent is. The question shouldn't be "How much of a discount can I get?" but rather be "Am I getting value from x% commission"?
- Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes9y
It totally depends on the amount of work being done. Are you expecting them to find the deal for you? How long are wanting for a escrow period? Are you going to close every deal they have to deal with?
In Texas, I know people that will do a deal for 1%. Here are the conditions.
1) $100,000 plus price.
2) Buyers and seller find each other. No MLS, no advertisement, no marketing at all.
3) Short escrow. No more than 30 days max.
The deals normally go like this.
Buyer calls agent says... I want to buy this address, with this entity, for this price, with this closing date, and 10% earnest money, with the usual other terms. The seller is expecting your call. I can be there in two hours to sign the contract and drop off the earnest money check.
- Hayward, CA · Member since 2016 · 100 posts · 15 votes9y
Hi @Account Closed. Thanks for the advice! That makes sense although given that I am new I couldn't be as hands off as you describe (yet it is good to keep in mind for down the line).
Now, I would want to see multiple properties in multiple areas of town to get familiar with them, the costs for the area and possibly pay for a contractor's time so he/she can show me what to look out for and what the costs could be.
This would be needed for at least some time before I would be comfortable enough to pull the trigger on something.
I just red J. Scott's book on Flipping Houses and he recommends to look at 100 houses in order to know the numbers inside and out. I doubt an agent would be too happy with me "tire kicking" that many properties and getting nothing in return or just a promise of a future commission...
So it seems like a catch 22 since I do need help and I do need a discount but an agent will be more willing to give me (a good) one as long as I don't ask much of him... hmmm.
Based on this, any discount would be better than none just don't expect a huge one it seems. Right?
- 9yDana WhickerPro MemberInvestor · Fernandina Beach, FL · Member since 2014 · 557 posts · 374 votes
Your instinct is right. If an agent shows you multiple properties over a period time, and it's your first time working with them, they are going to expect full commission. If you ask for a discount they may not be too interested in busting their hump to get you that next deal.
If you work with an agent for a few deals, and you follow through with whatever you say you will do, the commission starts to get pretty flexible.
- Investor · El Dorado Hills, CA · Member since 2012 · 1k+ posts · 1k+ votes9yAs a buyer, there is no discount. The listing agent gets paid and offers a percentage to the buyers agent, that percentage is included in the MLS. You can ask for a rebate but I don't know of a competent agent who would be interested in doing that unless you were buying a huge volume or very high dollar property. You can negotiate for lower commissions on listings but you get what you pay for in terms of marketing and effort. Once again, the higher the price point the more wiggle room there is.
- Hayward, CA · Member since 2016 · 100 posts · 15 votes9y
That's right @Joe Bertolino! I overlooked the fact that I was talking about the buy side and not the selling side yet. As you point out, the seller pays for this off of the sale proceeds. Since that's where I am it is pointless for me to look for a discount which will really come into play when I am ready to re-sell the property.
I also do understand that I get what I pay for. It's just a matter of trying to find ways of cutting costs wherever possible in order to make a deal work even when unexpected things do pop up.
Makes sense!
- Hayward, CA · Member since 2016 · 100 posts · 15 votes9y
@Dana Whicker that makes sense as well. I will keep it mind. Thanks!
- Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes9y
@Patrick Boutin Well... with your requirements you will probably not get a discount unless you are talking about very high end.
- Dallas, TX · Member since 2016 · 1k+ posts · 745 votes9y
Maybe we have left money on the table. But generally I have been of the belief that working with a realtor who specializes in investments that their commission is well worth the money.
Our real estate agent has given us recommendations on when to pass on properties and when they think we are onto a good deal.
Maybe our business model is different than most, but I dont want to be transnational with my suppliers, I really want to focus on being collaborative. Think about it this way. Yeah, maybe you can pay 4% instead of 6% on a 200K property...call it $4K in savings.
What happens the next time that agent comes across a deal that is $50K under market? do you think they go to you? or someone who is paying a larger commission?
Our last deal was just that, our agent called us with a property that fell out of contract right before Thanksgiving. She was able to help us get it about $35-40K less than the sellers paid for it earlier in the year. If we were beating her up over the commission, my guess is she might have to one of her other investors.
I have also had our agent eat costs that might otherwise have gone to us. My agent in the past has hired a traveling notary to save a deal that was at the 11th hour. Another time she paid for a contractor to create an access door to a condo crawl space so that a closing could happen.
Several times our agent has made us thousands of dollars by negotiating higher (or lower) sales prices paying for the full cost of their commission.
I'll take the deal and pay a little more in commission. Maybe if we start doing large volumes we might work on amending terms with our investor, but as a fairly new investor, I want to be the client who they are first to bring deals..
- Hayward, CA · Member since 2016 · 100 posts · 15 votes9y
@Account Closed explains!
- Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes9y
Originally posted by @Bart H.:
What happens the next time that agent comes across a deal that is $50K under market? do you think they go to you? or someone who is paying a larger commission?
Our last deal was just that, our agent called us with a property that fell out of contract right before Thanksgiving. She was able to help us get it about $35-40K less than the sellers paid for it earlier in the year. If we were beating her up over the commission, my guess is she might have to one of her other investors.
You get it. I have had agents call me with great deals because I have been willing to pay the commission. Too many REI guys just think of saving the commission. They forget 100% of nothing is nothing.
Mark
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes9y
Hi @Patrick Boutin,
I suspect that you will get a lot farther keeping your agent in your corner and fighting for you than you will by beating your agent up.
Take a look at these two pictures below, tell me if you think this is likely to happen when your agent is only putting 60% effort in because you gave them a 40% pay cut:
Initial purchase contract....
Addendum a few weeks later (actually just came in yesterday)....
In the alternative world where you give your agent a pay cut, to $8k instead of $13k (2.5% is not unusual at this price point), did you really save money? No, because you gave away $9k to "save" $5k! I can certainly find more extreme examples of buyers agents working their tails off making a huge difference, but I wanted a current example.
Dollar-cost-averaged over multiple transactions, I believe there is no question that good, honest, and competent buyers agents earn their 2.5% to 3%. This is especially true when the same agent represents you on the next transaction, and the next, which is not uncommon for REI.
I do not personally believe that to be true of listing agents when selling a house, however.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes9y
Last time someone asked me to take a cut on a buy side transaction I told them they could choose to pay me my hourly consulting fee instead out of their pocket instead of the seller paying me my commission. I bill out at $350 an hour, including travel time to properties. They chose to go with the seller paid commission model, but I actually chose not to work with them since I didn't think they would actually close a deal.
District Invest Group545 Reviews - Santa Clarita, CA · Member since 2012 · 53 posts · 11 votes9y
As a Realtor that actively gives my buyers a 1% rebate, let me break it down to you like this..... MOST Realtors will tell you rebates either don't exist, you get what you pay for, agents would be crazy to offer it, bla bla blah. If you are one of the few top performing agents making millions per year, OF COARSE your not going to discount your services. Now for the rest of us....
87% of Realtors fail, mostly because they have no new business. We have all heard of 2/3 of something is better than 100% of nothing? I decided to redirect my marketing budget and essentially allocate it to the rebate. Since I have started giving my rebate, my referral business has increased dramatically, and its an easy sell for me when Im going up against "the other agent" who says "rebates dont exist!"
Just closed on a $500K condo, gave the buyer over $4K towards closing costs!
As to your question, I would not expect more than 1% rebate; It will be credited towards closing costs and on your HUD1 statement. I dont think any agents want to show 30-40 properties, but with the internet and tools available you usually dont need to actually view that many.
I would offer to help, but you are a bit too far for me to drive :)
- Investor · Burlington, VT · Member since 2016 · 110 posts · 59 votes9y
i think you got some great advise , i would say its a bit crazy to say you should look at 100 house or properties , i would think 10-15 should be reasonable . maybe because i am from a small state ?
i think once you get a few under your belt, i would think about your discount :) i think an agent will have his work cut out with you , haha , no offense :)
if you have a good age working for your best interest , its worth it .
- Real Estate Agent · Lexington, NC · Member since 2016 · 29 posts · 4 votes9yI am confused by your question since the listing agent is the one who pays the buyers agent. If you are the buyer, you have nothing to negotiate, but if you turn around to sell, that's when you can ask for a slight reduction in commission...however, I explain it like this when I list a house: I use 6 $1 bills and say these 6 represent the commission you will pay. 3 goes to the buying agent and if I don't offer 3, you will get fewer showings and less opportunity to sell. Out of the 3 I keep, 1 goes to my company, 1 goes to marketing YOUR house and the expense associated with that and the last dollar I rip in half and say, 1/2 goes to Uncle Sam and the other half is what I take home and feed my family with. Now if you want me to cut my commission, which dollar would you like me to remove from the equation? Haha. So many people think agents make a lot of money, but we don't. If you are the buyer, sit back and let the seller pay your agent's commission. If you are the seller, think about what it's worth for you to sell your property and how hard you want your agent to work.
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