Your realtor's commission is not really negotiable, according to new report
You've probably run across dozens of articles telling you that if you want to cut costs when selling your home, try negotiating down your agent's commission fee. However, contrary to popular belief, you can't really haggle with real estate agents on this fee in most situations.
That's according to a new report from the Consumer Federation of America, which had conversations with over 200 real estate agents in 20 U.S. cities. The consumer advocacy organization studied over 260 real estate agent and broker websites in four U.S. cities, as well as surveyed over 2,000 Americans on their home buying and selling perceptions.
Nearly three out of four real estate agents, 73%, said they would not would lower their standard rate.
"These commissions are hidden by traditional real estate firms," says Stephen Brobeck, a senior fellow with the CFA and author of the report. "They usually are not readily provided to potential home sellers and they usually are not negotiable."
The National Association of Realtors did not immediately respond to a request for comment.
When commissions come into play
When buying or selling a home, there are a lot of fees and expenses that can be part of the process. Home buyers typically don't have to worry about realtors' commissions; usually the seller covers this expense. The fee comes out of the the sale price of your home and is completely separate from the closing costs (loan processing fees, taxes, paperwork costs, etc.) that the buyer pays.
Many times, the commission is split between the realtor who helped sell the home and the agent who brought the buyers to the table. If that is the same person, they get the entire commission. A majority of realtors charge about 6% commission on the sale price of homes they sell, according to the CFA's analysis.
These fees can be a big expense for sellers
Commission fees can really add up for sellers. For a $300,000 home, a real estate agent's commission can run about $18,000. Consumers pay an estimated $100 billion in annual home sale commissions, the CFA calculates.
Yet despite the cost, many Americans don't understand what they're paying in commission fees, Brobeck says. Over half of Americans who bought or sold a home in the past five years could not accurately guess that realtors are typically paid 5% to 6% commission. About 20% thought it was less and 40% thought it was more.
"We just need a lot more light on the subject of broker compensation," Brobeck says. It's not just the industry that's to blame — consumers need to become better aware as well. "The barriers to that are not just from the industry, but also the consumers who are understandably more concerned about making the sale or the purchase and the sale price than they are about the brokerage fees," he says.
Go into the process well-informed
If you are in the process of buying or selling your home, Brobeck recommends interviewing several realtors and asking them upfront about their commission rates. "If buyers and sellers do not ask their agent about the commission, they may not learn about it until the closing. And that's really too late to negotiate anything," he says. If you do want to try and negotiate, Brobeck recommends having that discussion "as early as possible."
Although buyers typically don't have to pay the commission, Brobeck says it's important that they also talk about compensation. That's because buyers who are unaware of their agent's commission split may be vulnerable to being "steered away" from homes where their realtor may earn less compensation.
Additionally, understanding how the commission is structured can be key. A small number, about 4%, of realtors Brobeck spoke with said they will actually lower the commission if they are the only agent involved in the sale. Brobeck also found that some were more willing to negotiate if the home value was higher than average.
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