You’ve heard it send 1000 times and just for the record I’ll say it again, everything in real estate is negotiable and real estate commissions are no different.
What does a buyer usually pay for real estate commissions?
Zip, notta, nothing.
The seller typically pays all of the fees associated with the real estate commissions. Some instances where this may not be the case include:
- A buyer is buying a home at auction
- From a seller who is not using the services of an agent (For sale by owner)
- Or a handful of special programs like the “Good Neighbor Next Door”.
Auctions and special programs usually involve selling a home at a discount, therefore buyers usually don’t object to paying the commission considering the home is likely priced well below market value. Home sellers should note; when it comes to “For Sale By Owner” homes, the buyer might be shopping these listings with the purpose of also saving the commissions.
If you are a buyer working with a real estate agent, you may want to ask them if they will show you no or low compensation homes (those are homes that don’t advertise compensation or they offer low compensation). My personal approach is to show you all the homes that might work and (if possible) I will negotiate my commission as part of the sale. If that is not possible I will either ask the buyer to compensate me a for a fair amount or if the buyer is unable or unwilling, I will simply excuse myself from the transaction.
Not all agents have the same approach. It’s important for you to understand your agent’s approach so that you know if you are seeing all the available homes.
What does a seller usually pay for real estate commissions?
When a seller lists a home for sale the commission is agreed to between the seller and the listing broker. This fee is the entire amount due upon the successful closing of a sale from the seller. If the home is sold to a cooperating broker (a buyer’s agent) then part of the commission is paid to the buyer’s agents firm. The seller should ask the listing broker if this fee is split down the middle and if it is not, what is the advertised compensation to the buyer’s agent and how competitive is that in the market?
The real estate fees can range from a couple thousand dollars to ten’s of thousands of dollars.
If you decide to list your home with a help you sell type of company, also known as a limited service listing brokerage, you’ll usually pay upfront a flat fee (anywhere from $500 on up) and a percentage of the sales amount for the buyer’s agent. For that fee, you will get your home listed in the local multiple listing service. The seller typically gets to choose the percentage offered to the buyer’s agent, but if it’s too low, you’ll likely receive few showings by brokers. You’ll want to know if the flat fee includes things like a real estate lockbox, photos, help filling out the paperwork, help promoting or advertising the home or if you are entitled to a refund if the home doesn’t sell.
If you decide to list your home with a full-service broker you should expect to pay a percentage that will typically range between 4% to 7%+ and which are always negotiable. With this type of service, you should expect high-end marketing specific to your home, regular updates on market conditions and an aggressive negotiator. If the home does not sell during the time of the listing agreement, most listing agreements will not require any compensation. Your broker and/or the buyer’s broker is only paid upon the successful completion of the sale.
Are real estate agents worth what they charge?
Let’s break down the services you receive when you list your home for sale with me.
- Marketing advice – I view about 1000 homes every year, I’ve shown buyers over 10,000 homes in my career, I know what a buyer finds valuable and I know how to position your home to appeal to their interests.
- Professional presentation – not only is staging consultations and professional photography standard for homes I list* I also know how to input the data into the local listing service to ensure buyers and agents are seeing your home as a result of their queries.
- Leveraging the thousands of brokers who subscribe to the MLS who may already be working with a number of buyers that want your home.
- Years of training and access to legal issues affecting real estate. While I’m not an attorney, I do have regular attorney updates from the attorneys who work for my local listing service. I can help guide you to an attorney when necessary and ideally save you the headache of a legal issue when selling your home.
- Use of a real estate lockbox that tracks the agents who show your home and when they were in your home. These lockboxes employ a number of technologies to ensure the security of the home.
- Professional negotiation based on years of experience and selling well over 200 homes.
- Current knowledge of how your home compares to others on the market. Negotiating is a matter of effective communication (learned from years of experience) as well as being the most knowledgeable about the market (learned from a passionate pursuit of viewing homes and market statistics)
- Guidance working through your buyer’s inspection, appraisal, lending procedures, and the entire closing process.
- All of the above and 100% guaranteed. You pay nothing unless the sale closes.
So now that we’ve covered the service, let’s break that down where the real estate commissions go.
- The listing firm will take a cut of the commission.
- This fee covers the expense of running an office, keeping the lights on, training the brokers, maintaining meeting rooms for clients, etc.
- The buyer’s agent and the buyer’s firm.
- The expenses of professional photos, staging, signage, advertising, etc.
- My personal business expenses. A nice clean car to show buyers your home, cell phones and technology, personal advertising, etc.
After my business expenses are paid, and these expenses are due regardless of the successful closing. I then must pay the following personal expenses:
- My salary
- My self-funded health-care and retirement accounts
- My small business taxes
After all is said and done, I typically take home about 30% of the listing side commission or about 15% of the total amount the seller pays. If I’m not successful; not only is there ZERO compensation, but all my advertising and business expenses must still be paid.
All the above information pertains to Washington State as of the date of this writing and is subject to change. No guarantees are made unless it is writing. If you need a local agent, please contact me and I will get you a credible referral for your market.