How to Negotiate Commission Rates with Real Estate Agents

No matter what you hear from real estate agents, commission rates are always negotiable. You don’t HAVE to pay 6% when selling. The Department of Justice even condones competition in real estate by offering rebates and adjusted commission.

If that’s news to you, it should be good news. You need not feel bad about seeking out an adjusted commission rate from real estate agents. It’s only natural to want to save money, right?

You still have to know how to go about negotiating commission rates. You can’t sit an agent down and say, “This is negotiable! What’s wrong with you?” Successful negotiating requires industry knowledge and tact.

Here are some things to know in order for you to have the best experience possible when negotiating commission rates. Understanding these concepts will allow you to bring them up while respectfully negotiating.

Understand How Commissions Work

First, you need to understand how commissions work. You might think it’s as simple as 6% of the total sales price going into a real estate agents wallet. This thinking causes sellers to believe real estate agents are overpaid. But that’s far from the truth.

We’ve written more in depth about how commissions work, but here’s a basic explanation (graphic explainer below) of where all that money is going.

• Of the 6% commission taken from the final sales price, each agent will get a 50/50 split. Then, a large chunk of the money each agent gets goes to their managing broker, often times 50%.
• To do some basic math, that means if a home sells for $100,000 at a 6% commission rate - each agent will get $3,000 and then they will have to pay their managing broker $1,500.
• Selling agents especially have to spend money on marketing costs in order to sell the home.

As you can see, it’s not as simple as 6% going into the agents wallet with them showering in dollar bills and laughing as they drive into the sunset.

Learn About Your Local Market

The commission structure discussed above is common across all markets. However, there are reasons why it may be more or less common to negotiate commission rates in individual markets.

Since agents can stand to make a lot of money off of an average home in an expensive market, it is a lot more common for agents to lower their commission rate because they can still make good money off of less than 6%.

For example, compare San Francisco where the median selling price is about $1 million to New Orleans where the median selling price is around $160,000. In what city do you think you’re more likely to find an agent that will charge less than 6%? (listening) That’s right - San Francisco.

Consider your home in comparison to the rest of your local market. Such as if it is above the median selling price in your area, and if it is in a desirable location where it would sell fast. If so, then there’s a higher potential for you to negotiate a lowered commission. If the opposite is true, where your home is cheaper than average, and in an area that’s tough to sell, then your chances of a lowered commission rate go down.

Learn about current local market conditions, too. When inventory is low and there are plenty of home buyers searching, then a seller’s market is created. Homes typically sell very fast and for above asking price in a strong seller's market. This makes things a lot easier on your agent, which means they may be willing to lower their rate.

On the other hand, if homes are taking a long time to sell and they are going for less than asking, then a market is created where buyers have the upper hand. In this type of situation, you’re less likely pay less than 6%.

Interview Multiple Agents

This point can’t be stressed enough. Interview multiple agents!

A good agent today understands that sellers are far more informed than they used to be. They should be happy to let you ask them questions so they can truly prove that they are worthy of being hired. Run away from an agent that won’t let you interview them.

We’ve written about what questions to ask agents in depth. Some examples are, “How long have you been practicing real estate?” “How fast have you sold homes in the past year?”

Also, let the agents know that you’re interviewing other agents. This will create an environment of competition to earn your listing. And we believe that when agents compete, you win™.

Be careful who you choose to interview as well. We do NOT recommend hiring a friend or relative to be your agent. There are far too many stories of relationships being ruined in real estate.

Ask around, and do some research online. You can also browse our network of top local real estate agents.

Listen to The Professionals

Agents deserve your respect, especially if you chose top notch agents to interview. Like we said, there’s nothing wrong with seeking out the potential of a lowered commission. But there is no reason to demand a lowered commission.

Commission isn’t everything. It’s far more important to work with a professional agent that is a fantastic listing agent. You’re better off selling your home for more money than for less money but with a lowered commission from a low quality agent.