How To Negotiate Real Estate Commissions

The recent housing dip provides an excellent opportunity for buyers and sellers to extract lower commissions from their real estate brokers. The commonly accepted rate of 6% can now be negotiated to around 4.5%.

In theory, of course, broker commissions are always negotiable. Setting up fixed commission rates has, in fact, been considered illegal since a 1950s Supreme Court ruling. But real estate brokers certainly don’t want you to know that. “The owners of the large [broker] firms want everyone to think the broker fee is 6%,” says Jay Michael, Labinov’s realtor and the founder of Estate Property Group, a boutique real estate firm in Chicago that, while a full-service brokerage, negotiates its fees with its clients, typically charging 4.5% to 5.5%.

To further increase your leverage:

  • Use the same broker to sell your current house and buy a new one. Negotiate an overall discount on both houses.
  • Use a smaller firm. Lower rates can be approved faster with fewer layers of bureaucracy.
  • Use a different broker. If one broker won’t negotiate, leave him/her and find one who will.
  • For the especially adventurous, consider using the internet to replace your broker altogether.
    — CAREY GREENBERG-BERGER

    More Real Estate Brokers Are Reducing Their 6% Fees [Smart Money via FreeMoneyFinance]
    (Photo: brighterworlds)

  • Comments

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    1. Sudonum says:

      My wife is a realtor. She is licensed in both Louisiana and Florida. She got her license so that we would not have to pay 6% comission to sell the homes we build. We both think it’s ridiculous. That being said, she knows many realtors in both markets and not many of them are cutting their comission. Among many of them the prevailiing thought is that you have to work so damn hard now to make the sale, and since there are fewer sales to make, that you can’t afford to cut your comission.

      Also keep in mind that in many cases you are working with your realtor and their broker, who gets a cut of the sale (1%-1.5%). As well as the buyers agent ahd that agents broker as well.

      Regarding agents who will sell your house for “free” if you buy a house from them. In deals such as those, they are going to steer you toward their sales listing so that they don’t have to split the money they are getting from that seller with another sellers agent. Therefore they may not be willing to show you everything available on the MLS.

      As with anything in life, there is no free lunch.

    2. MonkeyMonk says:

      We sold our loft condo in Chicago a couple of year’s back and had no problem finding a selection of Realtors who were willing to cut their normal costs from 6% to 5%. The only Realtors who said they “couldn’t” cut their prices were from the big guys like Prudential. We ended up going with one of the 5% brokers and even though he suggested listing the condo at a higher price than the rest of all the brokers we interviewed estimated, he sold it within a week and at asking price.

      Great experience that saved us $5000 and a lot of hassle.

    3. tadowguy says:

      @MonkeyMonk: If you saved 1% and it was $5,000, can I assume that your “condo” was a $500k unit, “a couple years back”? That’s insane.

    4. MonkeyMonk says:

      @tadowguy: Welcome to big city real estate prices (and Chicago is nowhere near as expensive as Boston, NY, and San Francisco). Our loft was nice but nothing spectacular. It’s biggest draw is that is was in a nice warehouse conversion that happened to be smack in the middle of a quiet residential area and not the usual “urban” warehouse locations.

    5. rich815 says:

      “…Among many of them the prevailiing(sic) thought is that you have to work so damn hard now to make the sale, and since there are fewer sales to make, that you can’t afford to cut your comission(sic)….”

      This shows how stupid most realtors are. Demand goes down for their services yet the supply of their services (themselves) is either the same or higher, yet in the face of generally accepted and proven economic law that in this case prices must go down they stay put based on how much harder it is to get their business. Yeah, makes sense. Within a few years the trend to online real estate listings and transactions will have most of them out of work soon anyway.

    6. Chris says:

      Anyone ever work out a sliding scale with a real estate agent?

      Something like 1% for anything up to the asking price; 5% for the first $XX thousand over the asking price; 10% for the next $XX thousand, etc.

      If you figure any monkey can sell a house for $X, why pay a significant commission for that part? Let the agent get paid on the value she actually adds to the process. It would also seem to align the agent’s interests with yours, which the current system doesn’t really do (see Freakonomics).

      (I had this idea a couple years ago during the boom times in San Diego, but haven’t had a chance to try it.)

    7. revmatty says:

      Or use a broker that’s a friend. When we bought our first house in CO we didn’t have a broker. Turned out that the broker for the house we wanted was a good friend of the owner and was cutting him a deal. She offered to be a transaction broker (represent both sides of the deal) for a total commission of 5% (2.5 from each of us). When we went to sell the house under duress (dot-bomb victim) she offered to give us the same commission rate as when we bought it, as we’d become good friends in the interrim.

    8. Sonnymooks says:

      @Chris:

      Regarding that sliding scale, there is a version of it thats illegal in NYC, where basically the broker charges no fee, and gets to keep any money he gets above the price you wanted. Its illegal because it takes advantage of the seller since the broker can lie about the value of the house, using a sliding scale is also very risky, not for the broker, but for the seller for the same reason, but as for it being legal, it all varies from state to state.

    9. Sudonum says:

      @rich815: I apologize for the spelling errors. I did not proof read or spellcheck my previous post.

      I agrees with you about realtors going to way of the travel agent. Fortunately it will give the consumer more power And your anology about real estate agents is correct if the comodity for sale is the realtor. But that isn’t always the case.

      John and Jane Doe want to buy a house. Either they are new to the area or they are currently renting. They have no house to sell. They are pre-qualified for a home that costs no more that $250,000.00.

      They call Joe Jerk, the realtor. Joe Jerk tells the Does that the seller pays the commission from the proceeds of the sale. And that’s how he makes his money. Now, Joe Jerk the realtor, just had at least $7500 fall into his lap when these two called him. Is he going to start showing the Does property where he makes that, or is he going to start showing them property where he makes $6,250 or even less?

      In the Florida Panhandle right now there are properties where the seller is offerring premiums for agents who have qualified buyers. There’s a house listed for $750,000, the seller was offering an additional $15000 to the agent that brought him a buyer and completed the sale, over and above the regular comission. The sellers agent/broker still gets 2.5%

      There’s another angle on supply and demand for you.

    10. Sudonum says:

      And there’s yet another typo…. I’m too damn tired to post tonight

    11. GearheadGeek says:

      @Sudonum: If John and Jane Doe are such poorly educated buyers that they let Joe Jerk decide how much they’re paying for a house, or select the range of houses to show without their input, they’re probably the sort who tell the car salesman how much they want to pay per month too.

      When I bought my first house, I used a buyer’s agent recommended by a mutual friend. I told him up front what price range I was looking for (along with a lot of other info about what I wanted to find) and he still wanted to “do the numbers” and told me based on a few formulas how much I could probably borrow. I told him I hadn’t wasted my minor in finance even though I worked in MIS, I knew what I could borrow and I also knew what I wanted to pay, and if he wanted my business he’d listen to what I wanted. He learned, he found the right house, and I loved the house and eventually sold it to friends when I left Austin.

      You can’t abdicate your responsibility to manage your own finances just because some realtor tells you that you can borrow 1.5x or 2x what you intended to. That’s part of what is driving the rise in foreclosures.

    12. Sudonum says:

      @GearheadGeek:
      I’m not suggesting you not educate yourself and throw yourself on the mercy of the agent/banker, or anyone else you do business with. All I’m trying to point out is that there are situations where an agent will not negotiate a commission, even in a tough market. And sellers are paying a premium to get their properties sold, over and above the “normal” commission. Quite the opposite of negotiating a lower rate. As I said, a different type of supply and demand. Buyers are in short supply and the agents that represent them, if they have an agent, are able to take advantage of that situation. And until all sellers get access to the MLS then the agents are still the gatekeepers.

    13. Sudonum says:


      @GearheadGeek:
      And none of my comments have absolutely anything to do with obtaining a home loan or any other portion or act of buying or selling a home other than making contact with a Real Estate Agent, either as a buyer or a seller.

    14. zolielo says:

      Best I have seen is 1% but normally 3% can be done. 4.5% is a bit generous – work on your game theory…

    15. MonkeyMonk says:

      @revmatty: Are you saying you paid a 2.5% commission to a broker when you were *buying* a home and you had already found the property on your own? Sounds to me like you might have been ripped off. Even when a buyer uses a dedicated buyer’s agent both halves of the split commission fee are usually paid out by the seller.

      I could be mistaken if this varies state-to-state but I’ve never seen anything like this in my personal real estate transactions.

    16. Ian says:

      I’m a Real Estate Broker/Office Owner in the Western Chicago Suburbs and have to say that it is always in your best interest to ask for a discount. The worst someone can say is no. As for us, we are small and it is easy to decide on making a change rather than having to ask the boss. I also believe in giving clients a discount when they sell and buy with our company. It makes for good business.

      I do see the real estate playing field changing daily with the introduction of new technology, but there is a definite benefit in using a licensed Realtor on either side of a transaction. Don’t get me wrong, homeowners can sell by owner, but put some thought and trust into using the services of a professional that deals with buying and selling on a daily basis. We hear from so many clients “I would have never known how to do that or I never would have thought of doing that”. So, get educated on your area and do some research before speaking with a Realtor and as with any professional service ask questions and get references.

    17. swalve says:

      Ian- Like anything, the experience of hiring a professional depends on both parties. If I’m willing to field calls, show my house and negotiate on my own behalf, a Realtor® probably won’t seem like a good value to me. But if I want the thing just sold without any hassle on my part, a realtor is well worth it.

    18. thrillhouse says:

      contrary to many posts here, I’m an advocate of finding a kick-ass agent and paying them what they’re worth. Typically, you get what you pay for, and real estate agents are no exception. One willing to cut their rate may also be cutting back their efforts.

      I shop for agents based on experience and expertise, not ones so desperate for business that they’ll cut their own commission.