How To Negotiate Your Real Estate Agent's Commission [2024]

When it comes to real estate, there are a lot of fees or charges involved. As a homebuyer, you might focus more on lowering the total sales price of your chosen property. Conversely, you prepare for many expenses associated with selling your house as a home seller.

However, one thing often ignored is negotiating for your agents' fees. The statistics don't lie: Over 35% of homebuyers and sellers don't know they can negotiate their real estate agent's commission.

Here’s the good news: More than 30% of homebuyers and sellers negotiated with their real estate agents. The same LendingTree survey revealed that nearly 65% of them successfully reduced their fees. That should convince you to negotiate with your realtors effectively.

This page tackles effective negotiation with real estate agents. Read on to learn how to negotiate with your realtors to reduce commission fees fairly and reasonably.

Key Takeaways

What To Know About Real Estate Commission

First things first, what is a real estate commission? It's a fee paid to the home seller's and homebuyer's agents at the time of closing for the real estate services they rendered.

Of course, it's crucial to find a real estate agent, whether buying or selling a property. Your agent will handle almost everything, from preparing all the paperwork to closing the deal. In return, they get paid for their services during closing.

However, the question is: Can you negotiate your real estate commission? The law is crystal clear: They are always negotiable. So yes, you can negotiate with your real estate agent to lower the commission!

That said, here are key things you ought to know about the real estate commission:

• Commission rate: This is typically around 6-5% of the property's total sales price, averaging 5.57% in 2024. However, it varies according to the location, market conditions, property value, and industry trends.

   

• Commission split: This is usually a 50/50 split between the seller's and buyer's agents. Understand that home-buying entails two parties working together, each requiring a realtor.

• Listing agreement duration: This refers to the length of time during which the agent has the exclusive right to sell the property. This agreement often runs between three and six months.

• Exclusive right to sell: There are laws and regulations protecting real estate agents. Mostly, they earn commissions regardless of who finds the buyers. This legality prevents others from selling the property and getting a commission unlawfully.

• Payment terms: The commission is typically paid at the closing of the property sale. The payment is usually deducted from the seller's proceeds at closing.

How does it work? Let's crunch the numbers:

Suppose a house for sale is worth $2.00 million. Assuming the commission rate is 5.5%, the total commission is $110,000.00. In that case, the homebuyer's and home seller's agents will receive $55,000.00 each.

In the next section, learn how to negotiate your real estate agent's commission, whether you're a homebuyer or home seller.

Top Tips for Negotiating with Your Real Estate Agent for their Commission

Regarding home offers, the role of real estate agents is essential. Generally, realtors exist to assist both buyers and sellers in the entire process. However, their scope of work is vast, which includes but is not limited to:

• Listing and marketing properties
• Networking and looking for properties
• Consulting and representing clients
• Staging and preparing properties for sale
• Obtaining and securing documents
• Negotiating the offers
• Closing the deal

As you can see, real estate agents deserve good commissions for all their hard work. It's good that most Americans are aware of the agents' regular compensation. Nearly 60% of people claimed real estate fees don't affect their home purchase decisions:

This doesn't necessarily mean you can't negotiate with your agent to reduce the fees. However, it’s best to set contracts in place while your realtor or real estate agency conducts legal contract analysis during the process. Ultimately, meeting halfway is key to a successful negotiation—a win-win for both parties!

That said, here's how to negotiate for your real estate agent's commission:

1. Research on the standard market rates

A lot is included in a home sale, including mortgage fees, compliance expenses, and closing costs. Conducting research and preparing for all expenditures involved in your real estate journey is imperative. So, while at it, consider the following:

• Market rates: You better check your area's average real estate commission according to your property type. As cited, it's usually between five to six percent of the total contract price.
• Industry trends: You must also consider the real estate trends since the market value fluctuates. Chances are that your agent's commission rate could rise or fall.

Mark Pierce, CEO of Wyoming Trust, recommends performing due diligence before the actual negotiation. "It's easy to leave everything to your agent during the entire real estate journey. However, it's best to research various facets, whether acquiring or selling a house. These include checking the range of the commission rate based on several factors before you proceed with the actual negotiation."

2. Evaluate the agent's expertise and experience

Working with a real estate agent is imperative when planning to buy or sell a property. But before picking one, you'd typically look for a highly reliable realtor you can trust and work with. When screening, factor in the commission rate as well based on the key factors below:

• Experience: How long have your prospective agents worked in the real estate industry? Check their credentials and portfolios to see how they've helped former clients. That can affect their commission rate!
• Expertise: What do your potential agents specialize in? Consider the real estate knowledge and skills every agent should excel in to see who fits your needs best. However, their fields of expertise can impact their commission rate!

Jeffrey Zhou, CEO and Founder of Fig Loans suggests being highly critical in your selection process. "Your hired real estate agent can be instrumental to your overall real estate success. Typically, these professionals have access to resources such as professional networks, databases, and real estate virtual assistants that allow them to provide clients with comprehensive and efficient services. While you want to get the right one, you don't want to be financially crippled as well. I have my fair share of investing in real estate, and your hired agent can make or break your deal!"

3. Consider your property's market position

The property you plan to sell or seek to acquire can significantly impact your real estate's work scope and commission rate. As such, there's a need to study its market position based on the following factors.

• Home pricing: You typically consider or set a reasonable home-selling price based on the location, market value, property aesthetics, or functionality. Since the commission is based on the total contract price, do the math to see how much your agent will get.
• Property value: It's also vital to consider the home value since it greatly influences the total contract price. Your agent will most likely demand a higher rate if the home value is high, but of course, you want to ensure it's fair enough.

Roman Zrazhevskiy, founder and CEO at MIRA Safety, highlights property value in real estate investments. "Almost every real estate agent knows how this can greatly impact the total property sales price. And it's just right for them to capitalize on this opportunity. However, you want to ensure the commission rate is reasonable, like what we do in our recent investments."

4. Use effective negotiation tactics

After your extensive research, you can now proceed with the actual negotiation. This step is the most crucial—renegotiating an offer after it's been made. But how do you go about doing so? Here are some negotiation tactics.

• Establish transparency with the agent's work scope. First and foremost, you should be clear about what your agent is and does throughout the real estate journey.

• Discuss the financial circumstances of both parties. Suppose your agent isn’t affiliated with a real estate firm with benefits like having the privilege to file for a compensation claim. In that case, your realtor will most likely ask for a higher commission. On the flip side, if your agent works for a thriving real estate company, you might negotiate as well to see if they can reduce the commission fee. After all, they have your best interest in mind!
• Build trust and good relationships with your realtor. Establishing good working relationships with your agent is essential for a win-win situation for both parties!
• Ask to negotiate politely but discuss professionally. Once you establish the first three, you can now negotiate with your agent. But as mentioned, ensuring politeness and professionalism is key!
• Meet halfway during the negotiation process. Ultimately, the goal is to ensure that you both benefit from the real estate investment, whether selling a property or acquiring a new house!

It will always be a part of the entire real estate process. However, your realtor will do this for the most part. So, you also need to practice your negotiating skills when dealing with your real estate commission rate.

5. Put everything in writing

Finally, the negotiation between you and your realtor has arrived at a mutually agreed commission rate. What better way to encapsulate this agreement than to create a clearly defined contract? Of course, you don't want to lose money by selling your house or investing in a property.

• Set contractual agreements. In addition to the usual staples indicated on a contract between you and your real estate agent, a contract should highlight the agreed commission rate. Specify the amount they'll receive at the time of closing. Make sure both parties have agreed and signed.
• Consult a legal professional. Work with lawyers specializing in real estate. Let them create the contract after the negotiation. That way, you and your hired realtor will be held legally protected yet accountable.

Jonathan Feniak, General Counsel at LLC Attorney, recommends working with a real estate attorney. "Not only do they help you with drafting contracts, but they also guarantee legal compliance. And this includes ensuring you and your agent mutually agree on the commission rate. In the end, it will be a win-win for both parties!"

Final Words

Navigating the real estate market can be financially debilitating. Whether you want to make your dream home come true or sell your property for an ROI boost, find practical ways to reduce your overall expenses.

It's best to consider negotiating with your real estate agent regarding the commission. That said, follow our practical tips for reducing the fee, from studying the market to setting a contract.

Negotiating your agent's commission fairly and reasonably will help you rise above your financial challenges. Ultimately, doing so will make your real estate investment all worth it!

FAQs

1. Can I negotiate my real estate agent's commission below the average market rate?

Yes, negotiating below the average market rate is possible, depending on factors like the property's value, local market conditions, and the agent's willingness to adjust their fees. It's essential to research and present a compelling case during negotiations.

2. What strategies can I use to justify a lower commission rate for my agent?

You can justify a lower commission rate by highlighting factors such as the agent's experience, their track record in similar transactions, and the current competitiveness of the real estate market. Providing comparative data and demonstrating your understanding of market dynamics can strengthen your negotiation position.

3. Is there flexibility in commission structures beyond a percentage of the sales price?

Yes, commission structures can vary besides a percentage of the sales price. Some agents may offer tiered commissions based on sale price thresholds or alternative fee structures based on specific services rendered. Discussing these options can lead to a more customized and cost-effective agreement.