How to negotiate the commission rate with your real estate agent
Last modified: 2020/05/08 | Approximate reading time 3 mins
Are you thinking about selling your home soon? You probably have a ton of questions regarding the commission rate that you will have to pay to your real estate agent following this important transaction. Although a real estate agent usually earns a commission rate that sits somewhere between 4 and 7% of the sales price, it should be noted that you can always negotiate. How should this be tackled?
Negotiating the commission rate with your real estate agent
Who has to pay the real estate agent's fees?
One would think that both the buyer and the seller have to pay a commission to the real estate agent but this is not the case. Indeed, the seller is responsible for the whole commission. The buyer, on the other hand, does not have to pay the real estate agent in order to use their services. Why is that so?
The reason for this is mainly due to the fact that the seller's agent will have more things to take care of than that of the buyer. Indeed, the list of tasks that the seller's agent will have to take on is long: organizing the marketing and visits, drafting the legal documents, assisting with the various professionals involved in the sale (notary, appraiser and other).
That being said, you should know that the buyer's agent also receives a commission. Does this mean that the buyer also has to pay a commission? The answer is no. Indeed, the commission that will be paid to the seller's agent (once the property is sold, of course) will be divided between the two agents if the buyer is also working with this type of expert (some choose not to).
This means that whether you work with a real estate agent as a buyer or a seller, it will be important to discuss the share of the commission that the other agent will receive. Indeed, the fact that the commission could potentially be divided between the two will inevitably affect the minimum rate to be applied. In this regard, remember that the seller's agent could easily decide to show their clients other houses if they judge that the commission they would receive following the sale is insufficient.
The factors that influence the commission rate
As mentioned earlier, the commission charged by a real estate agent is set between 4% and 7% of the sale price of a house. Taking into account this 3% difference, it makes perfect sense to want to understand why this amount can vary so much. First of all, it should be mentioned that the location of the house will play a big role in calculating this number. Indeed, if your house is located in an area that is less attractive to buyers (regardless of why), your agent may ask for a higher commission.
Next, note that the condition of the house will play a big part in calculating the commission rate. Logically, it can be taken for granted that a house requiring more renovations will be more difficult to sell. As a result, an agent will tend to ask for a higher commission to commit to completing the sale. Conversely, a house that is freshly renovated will have less difficulty being attractive to real estate agents.
Finally, let's not forget to talk about the cost of the home. Keeping in mind that the workload that the agent will face will be the same regardless of the sale price of the house, they will usually ask for a higher percentage for a house with a lower price (between $ 175,000 and $ 200,000) and a lower percentage for a house with a higher value.
Negotiating the commission rate: when should you do it?
Different circumstances can create a context that is conducive to better negotiation. Indeed, a wise seller will wait to receive a purchase offer to launch this process. They may then ask the agent to reduce the commission rate, in exchange for which they will promise to accept the offer that has been submitted to them.
Secondly, a seller could decide to take advantage of the renewal of their contract to lower the agent's commission. Taking into account that the property is still not sold, reducing the commission rate could be a condition when deciding whether or not to hire someone else.
Asking for a lower commission rate, but how much lower?
While we recognize that you may have a vested interest in negotiating the fees charged by your agent, you should still be realistic about the results you can expect. On this point, note that a 1% drop would be much more likely than a 2% or 3% drop. Besides, you have to keep in mind that a lower commission is certainly not a source of motivation for a real estate agent.
Are you about to buy or sell a home? Check out our Real Estate: your complete guide to selling your property and Real Estate: your complete guide to buying a property.
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