You’re about to sign a listing agreement with a full commission agent when a friend tells you about a 2% real estate commission deal. Should you go for it?
The average cost to sell a home amounts to around $31,000, according to a recent HomeLight study, with the largest chunk of those fees going toward agent commissions. With the median U.S. home price now exceeding $300,000, a typical seller can expect to pay upward $18,000 in commissions alone if we assume they agreed to the average 6% rate.
That makes a 2% real estate commission all the more enticing. But the downsides to working with a low-commision agent can be steep. Without a top agent in your corner, you could dramatically undersell your home or have a rough selling experience.
To help you make an informed decision in your agent search, this guide offers insights on why some agents offer to sell your house for less and how a reduced commission fee can lead to unintended consequences for your home sale.
How does a 2% real estate commission work?
According to HomeLight’s real estate transaction data compiled from thousands of home sales each year, the national average real estate agent commission rate is currently 5.8%. Locally, commission rates can vary. Here’s a round up of commission rates across a few major U.S. cities:
- Los Angeles real estate commissions: 4.96%
- San Francisco real estate commissions: 5.04%
- New York real estate commissions: 5.33%
- Miami real estate commissions: 5.95%
- Austin, TX real estate commission: 6.0%
The data shows that in the typical real estate transaction, a seller pays somewhere between 5% and 6% in commissions. However, the listing agent doesn’t pocket the entire fee. The buyer’s agent takes what’s usually a 50% cut as a “finder’s fee” for bringing a buyer to the sale. In addition, both the buyer’s agent and listing agent will fork over some of their cut to brokerage and desk fees.
In a 2% real estate commission scenario, the listing agent would only charge the seller 2% of the property’s sale price for their services. As you can see, the 2% real estate commission is far lower than the average commission rate nationwide and at the city level. However (and this is key) the buyer’s agent fee doesn’t always disappear even when a listing agent slashes their individual rate.
Usually, a 2% commission agent will recommend that you also pay the buyer’s agent anywhere from 2-3% in commissions, which means your 2% fee winds up amounting to 4.5%-5% when all is said and done. When you account for the buyer’s agent costs, the savings gap you’d earn with a 2% versus a 6% commission agent narrows considerably*:
|Sale Price||2% Commission for listing agent||2.5% commission for buyer’s agent||Total commission paid (4.5%)||Standard 6% Commission||Potential commission savings|
*Commission rates are estimates and are not a guarantee for your home sale.
Why would an agent offer a 2% commission?
An agent’s main motivation in offering a reduced commission rate is to attract more clients and encourage them to sign a listing contract. A brand new agent or part-timer may not be able to “win” the listing based on a history of successful sales or bevy of great client reviews. Instead, they’ll need to lower their price to make the risk of underperforming worth it to their client. The 2% commission can also help give an agent an edge in a competitive market where inventory is low and other agents are clamoring for limited listings.
Jose Valiente, a top agent in Miami-Dade County, Florida, elaborates that an agent offering a 2% commission either doesn’t fully understand how much work must go into selling a house, or simply doesn’t intend to put in that level of work. However, by contrast, a top performer will have sold enough houses to know what their time is worth and can afford to turn down a client who won’t accept the standard rate.
What services will you get with a 2% rate?
If the 2% real estate commission sounds too good to be true, it might be — depending on what you need and expect from your agent. Don’t assume that you’d get the same level of service as a seller who’s paying the full commission rate. Talk with the agent to find out what services he or she would offer in exchange for the smaller cut and request a written breakdown so you can see what’s included line by line.
For example, the house selling down the street at a 6% commission rate might have the advantage of a 3-D video tour, dozens of professionally shot photos, social media promotions, and frequent communications from the agent. As a result, it could end up selling for a higher amount that could exceed what you would have saved with the discounted commission.
If you’re just looking for an MLS listing and bare-bones representation, and you plan to do the bulk of the marketing and promos yourself, a 2% agent might be acceptable for you. But if you prefer the full-spectrum service you’d get with the standard commission rate, think twice about cutting corners.
Keep in mind that you can interview more than one real estate agent before you hire one. One idea is to compare the services of your 2% commission rate agent against the services of a top local agent apples-to-apples, and see if the trade-offs would be worth it to you.
What are the risks of using a 2% commission agent?
Quality, cost, and speed — these are the top criteria people consider as they make their spending decisions. The general rule is you can’t have it all. So if you prioritize a lower commission fee in your agent search, how will your quality and speed be affected? Here are the top risks to consider in working with a 2% commission agent:
You lose in negotiations:
Mario Avalos, also a top real estate agent in Miami-Dade, sees a sprinkling of 2% commission agents in his market. In his experience, any agent charging 2% will likely lack the negotiation skills that full-priced agents have.
“If an agent values themselves that low, they probably don’t have the confidence or expertise to negotiate effectively with buyers,” says Avalos.
“Ultimately, the buyer will likely end up bringing down the price, which could offset the savings from the lower commission.”
You get left on “read:”
In addition, if an agent is discounting their rates per house, they’ll likely need to take on a larger number of clients to make up the difference. That means they’ll likely have to allocate less time and attention to each client. If you want an agent who is laser-focused on selling your house, can offer personalized service and quick responses, and can afford to invest in the “bells and whistles” when marketing your home, you’ll likely be disappointed by what you’ll get in exchange for the 2% commission.
A real estate agent fully dedicated to your needs will pull out all the stops to make sure you have a satisfying sale. If you want, you can ask a top agent to take complete charge. For example, Ryan Lidholm, a top real estate agent in Columbia, Missouri, sold the home of retired couple Debbie and Carl Kindle — all while they traveled the country in an RV. Talk about a stress-free experience.
You undersell your home:
According to our home sales database, the top 5% of agents sell homes for as much as 10% more than the average real estate agent. A top performer is going to be in tune with what local buyers seek and how to make your home irresistible to them. They’ll also bring hyper-local expertise to more effectively market nearby walking trails, coffeeshops, or neighborhood amenities. When buyers ask about crime and school districts, a top agent will point them to the right resources to get the information they need.
But a 2% commission agent is still cheaper, right? Well, let’s say hypothetically you do partner with a top agent versus an average one. The top agent helps you maximize the value of your home with strategic prep, spot-on pricing, and a strong multi-channel marketing strategy that helps you generate tons of interest. Suddenly, the house you would have sold for $300,000 goes for $330,000 — the 10% bump credited to the special expertise of the agent.
In this scenario, the agent’s added value (the additional $30,000) would exceed the cost of the standard 6% commission, amounting to $19,800 on a $330,000 sale. While it’s not guaranteed an agent will add a certain amount of value to your list price, our data would show that top agents consistently earn their seller clients more than their peers, helping to offset and even exceed their commission fees. If you’d like to meet a top agent in your market, we’d be happy here at HomeLight to connect you.
How does a 2% commission compare to a flat-fee service?
You could also ditch the listing commission altogether and play a fat fee for placement on the MLS. These services offer different pricing structures starting at around $99 for an MLS listing, a few photos, and some other basic services. The seller can pay a little more to include extra photos and get more prominent placement.
The biggest caveat here is that you won’t have a dedicated, personalized resource to help sell your home. Once it’s listed, you’ll be responsible for all of the services that an agent would usually handle:
- Prepping and staging your home for sale
- Setting an appropriate price
- Marketing your home to the right buyers
- Responding to all buyers’ inquiries and scheduling all showings
- Negotiating with buyers and buyers’ agents
- Handling all paperwork, disclosures, and contracts
If you’re juggling a job, family, and other obligations, or if you just aren’t knowledgeable about the home-selling process, this might require more time, knowledge, and energy than you’re able to commit. In addition, independent research from Black Knight found that for-sale-by-owner sales (FSBOs) sell on average for for 5.5% less, and in some cases nearly 6% less, than agent-assisted sales, so it could be a wash as to whether you’d actually save money by taking on all the work solo.
What about agents who offer below 2%?
How low can you go? In the competitive and increasingly digital market, the answer is pretty low. While there are agents out there who are willing to dip below the 2% mark, the risk of sub-par service increases as the commission drops. Most agents won’t be able to devote the same time and resources to a deal that is barely earning them a living wage.
2% sounds great in theory, but…
Avalos and Valiente both agree that a top-producing agent would not be likely to devalue their services to offer a 2% commission. Successful agents know their worth and respect their clients enough to give them the full levels of service they expect — and that’s not possible when cutting huge corners with commissions.
When it comes to choosing a real estate agent, the old mantra “you get what you pay for” really does hold true. Think of it like opting for basic economy flight. You’ll be happy you went the cheap route … until you’re crunched into the middle seat with no carry-on bag.
Header Image Source: (Jutta Kamp / Unsplash)