3 ways to pay lower real-estate commissions
Sellers have more options today for paring down real-estate commissions or handling the sale themselves. Here are three strategies that can help put more cash in your pocket.
Gone are the days when selling your home meant a stark choice between paying a hefty 6% commission to your real estate agent or going it completely alone on the For Sale by Owner route. Today, you have a number of options that fall somewhere in between. They include:
• Negotiating down your agent's cut;
• Paying a la carte for the services you need.
All of the options have this in common: They're designed to keep more money in your pocket.
Commissions have fallen in recent years to an average 5.1% nationwide. And as the market cools, commissions will be under more pressure.
Here's a quick rundown of how each commission-cutting option works.
Negotiating your agent's rate
In a typical home sale, agents for buyers and sellers each take a commission of roughly 2.5% to 3%, for a total cost of 5% to 6%, paid out of the seller's proceeds. But as agents compete with discount brokers and flat-fee services, some are becoming more amenable to reducing their cut to 2% or less. (It doesn't hurt, either, that record home prices mean agents are often still making a comfortable living on their listings.)
To get a reduced commission:
• First, ask several agents in your area to prepare a free market report, estimating the sales price of your home.
• Interview each agent. Tell them how much you are expecting to make from the sale of the house and ask if they will lower their commission to the percentage you want.
If your home is at the upper end of the market, you're more likely to have luck; Realtors are more willing to come down to 3% or 4% on $1 million homes, experts say. But even if your suburban ranch falls squarely in the middle of the market, there's no harm in trying.
"No one gets upset with you for asking," says Kasy Gott, a certified financial planner with Kochis Fitz, a San Francisco financial planning firm.
If you're turned down, simply thank the agent for their report and let them know you'll be putting your home on the market with someone else in the next couple weeks. It might be enough to sway them. If not, consider one of the other following ways to cut costs.
Full service at a discount
Sometimes, you can take advantage of discounts and rebates by going with a big chain. ZipRealty, a full-service real estate company based in Emeryville, Calif., generally gives sellers 1% off standard market commissions in their area, which the company says often amounts to a 20% savings. It also gives buyers a 20% rebate on commissions, which can be issued in the form of a check or applied to closing costs. If you use them to both buy and sell your home, you stand to save another 5%. ZipRealty, formed in 1999, now operates in 17 major cities and employs 1,450 agents.
Other chains are offering non-cash rebates, such as frequent-flyer miles. If you use a real estate agent sponsored by LendingTree and its sister company RealEstate.com, for example, you can receive rebates for airline miles or gift cards from Costco or Home Depot.
"(Consumers) are getting the rebate for something they would be doing anyway," says Mindy Duquette, spokeswoman for RealEstate.com.
Ben Shapiro in the Hancock Park area of Los Angeles offers to give a portion of his commission to a local private preschool. It's worth noting, however, that about a dozen states, including Alabama, New York and Oregon, have passed laws limiting the ability of agents to give rebates or offer services at low fixed fees to home sellers.
FSBOs — with help
When real estate brokers told Rosemarie Falcone she should list her Victorian home in White Plains, N.Y., for $650,000, the 49-year-old art director decided she could do better — alone.
Falcone listed her three-bedroom house through ForSaleByOwner.com, a national real estate Web site that offers access to the local Multiple Listing Service (MLS) through a local real estate broker who charges a flat fee. After running her first open house and printing marketing fliers, she managed a bidding war between three families and sold the property in April for $743,000.
Even better, Falcone only paid about $800 to ForSaleByOwner, saving more than $30,000 in broker's commissions. "I just thought, 'My God, this is a no-brainer. I can sell this home,'" she says.
If you're similarly comfortable handling part of the process, there's no shortage of sites and services willing to help you. Some will charge an hourly fee for services such as advising on price and preparing closing documents. You just need to figure out what part of the real estate transaction you can manage on your own and what help you might want to pay for, such as marketing.
Help-U-Sell Real Estate, with more than 1,000 offices nationwide, is one of the fastest growing franchises that provide a menu of fee-for-service options, including MLS listings, access to licensed real estate brokers and marketing help.
Tips for going it alone
Going it alone — even for part of the transaction — presents its own challenges, of course. First and foremost, you need to have time to show the home. Falcone, who saved $30,000 in commissions, had left her job to start a new life in Florida so she had availability and she likes interacting with new people. Another must: prepping your home for sale, including depersonalizing the space and removing clutter. (You can read more tips on how to prepare your home here.)
Of say 6%, half of the commission will go to the buyer agent 70% of the time, so the listing agent is usually down to 3%. Approximately one third of that will go to the brokerage, leaving you with 2%. Of that 2%, an agent still has to pay their overheads, board fees, continuing education costs, effective advertising of your property that can go on for months and their income tax on the sale -- and still have enough to live. Basically, on the average, 1% of your home sale will go in the listing agent's pocket when it's all said and done.
This is why discount brokerages pop up during the good times, and go bankrupt during the recessions. But not only is it unsustainable, ask yourself this: would you hire an agent hungry enough for a sale that they will work for table scraps, i.e. a bare bones commission? If they're that willing to throw away their own pay, how quickly do you think they're going to help you fight for every last dollar when you're negotiating a sale?
Make sure you get a top agent that isn't hungry for a commission. Then list your home for fair market commissions, so you attract the other top agents in the community. You'll sell faster, and quite frankly you'll net more money in the process.
Avoid being penny smart, dollar stupid. This article is really not in tune with how the system works, and why it has worked for over 100 years.
It removes the hassle of calling different agents and the awkwardness of negotiating commission with them. Your information remains private until you pick an agent to interview.
This startup is picked up by the Wall Street Journal http://online.wsj.com/article/PR-CO-20130429-912590.html and Inman News. Check it out.
I love the idea of negotiating commission. As a matter of fact I love it so much I think all paychecks should be negotiable base on performance. The only problem I see is all the people they put their comment against paying commission to RE agents would be homeless and die from hanger. I can't believe how people can be so ignorant. Those comments " I can sell it myself" or "agents want money for nothing, just take few pictures and show my property few times" are proof of their lack of knowledge. For those people who sold they properties themselves - congrats, you got lucky. Everything is great till first lawsuit. Buyer will go after you for any small mistake you make. And then you wish you never both this house in the first place. You will lose all the equity plus all your saving. Now you should ask yourself " Was it really worth?" Stop searching how to cut somebody's paycheck and search how much RE agent can save you. All those legal cases are public records. One more thing , if it is so lucrative to be a RE agent - "get a lot of money for nothing" try to do it yourself. Take classes, pass state exam, pay for all insurances and bonds and then PLEASE COME BACK and put your comments. Stupidity of some people have no limits. Take for example . His comment:" I have sold three of my homes "For Sell By Owner". I even taught my neighbor how to do it" - just right there. He act as an agent without appropriate license and he can be sued for that for big $$$. And he is soooo smart he even put this on the internet. He was smart enough to notice that house prices went down significantly. In a lot of cases more than 50%. That means the agent's commissions drop over 50% for the same work they have to do, gas prices went up (driving with clients showing houses), insurances double, cost of advertising went through the roof. Right now RE agents are making less than 25% than they used to, but of course Mrs. Debora Vrana, your advice is great, negotiate commission even lower. Please do all of us a fewer - do not write articles about something you have no idea about! We should negotiate your paychek.Thank you!
I have sold three of my homes "For Sell By Owner". I even taught my neighbor how to do it and they had a contract in less than two weeks. Not saying things will always be that easy but if the home is prepared correctly and the price is consistent with the market value, it can be done. I plan to relocate soon and considering listing with an agent. However, I refuse to pay the 6% commission. I will interview several agents, tell them what I am planning to sell the house for, and ask each, will they agree to a reduced commission. Those who refuse will be told I have no need for their services. If none are willing to reduce the commission, I will do it myself. The economy has a lot to do with the need to reduce commissions. Houses are not selling for what they were in good economic times. Foreclosures are up. Sellers know they will probably not get what they believe their home is worth and must accept taking less. If I must take less for my home, why shouldn't the realtor accept less in commission? It is time for brokers to rethink this commission rate and understand its more important to the seller to keep food on their table than making money for the agents to feed their family. Agents make their earnings on selling multiple homes, not on just one. I do not object to a realtor making money for their services, but not at a rate that hurts the seller. One last thing, if I do list my home with a realtor that agrees to accept less than the 6%, I will expect the full range of services that they give someone paying 6%. For me, "4 Sale By Owner" may become the best option to this commission issue.
You are forcing people to wait on selling their home or cabin, I have a hunting cabin (lodge) with 120 aces of land in northen Michigan, that my husband and I planned to retire in, he has since pasted away, I will not give a realtor 6 or 7% commission fees when I am the one who does all the work there! All they are doing is taking a few pictures and putting them on the internet showing a few people when they can squeeze them, sorry guys when you realize greed is at your own back door this is when this economy will turn around! Alot of people have saved and worked hard to have these extra's places and these realtor do not plan to see you again so they are getting New York prices for down home sales, just try and get these realtors to come down after they find out you the seller will make a profit!! Guess what, there are lawyers out there who will help with the final sale, once everything is sold and all sales are finally both the seller and the buyer are protected! Don't try and scar people into believing our realtors are out for your interest when it is the commission in the first place! I hope someday the internet does put the greed out of business!
if you want the best services, you pay for them. Would you shop for an attorney by asking if they will do your case for 33% off? Didn't think so......Don't forget, realtors are trying to make a living, same as you...and would YOU negotiate your living away? The hours spent by a realtor on most transactions bring the $$ per hour range that you wouldn't believe. Hours showing houses, negotiating,filing paperwork, on and on.....and no, I'm not a realtor, I've worked with them and think their services are very underappreciated, and I think this is rather a stupid article. Let's next have an article about negotiating the price of your physical exam by your doctor, and braces by your dentist......
Great post, more consumers need to be aware of this information. People are sitting on houses instead of selling because they are factoring in a flat 6% commission when, as you pointed out, it doesn't have to be that cut and dry. I've also noticed a lot of FSBO+ options popping up which, for some homeowners, is a great alternative to a full blown REALTOR.
I am a Flat Fee MLS listing Broker in NH and MA and very much believe there is a need for all types of services, including full service. Just like if I was to go on a trip around the world, I would visit a travel agent to be sure all the details and special requests were attended to by a professional..... because I don't know the travel industry that well. BUT, if I'm booking a flight to Oregon to see my in-laws I'm going to do it myself, online. There are many homeowners who can handle the Flat Fee a-la-carte approach and those people should do it and save themselves THOUSANDS of dollars. There are others who should not, i.e. the inexperienced or high-maintenance Sellers. Those Sellers should look into full service. They may pay more, but they may really need the additional help. Even so, full service commission can and should be negotiated.
I could also change my own oil in my car while breaking 3 other things in the process..... know what you can/cannot handle and choose accordingly; there is a service level for everyone.