If you’re selling your home, a 2% real estate commission may seem enticing in comparison to the average 5% to 6% rate. But you may be wondering if you can expect the same value from a low-commission agent that you’d receive from a full-commission real estate agent.
In this article, we explore the reasons why some agents might offer a discounted rate and what kind of service you can expect from a low-commission agent or discount brokerage. To help you make an informed decision in your agent search, we spoke with top-performing real estate agents:
- Megan Hill, who has 68% more single-family home transactions under her belt than the average agent in Montgomery, Alabama
- Jose Valiente, who sells homes 49% faster than the average Hialeah, Florida, agent
- Mario Avalos, who has 13 years of experience selling homes in Miami-Dade County, Florida
Let’s jump in.
How does a 2% real estate commission work?
Low-commission agents, 2% commission companies, or discount brokerages charge a reduced 2% commission to home sellers. While this may look like a 3% to 4% discounted commission fee of the average 5% to 6% commission, it’s actually a 1% discount or less, because it typically only applies to the listing agent’s commission.
Still, that one percent can add up to thousands of dollars in savings depending on the price of your home. However, as we explain later, paying a reduced commission may impact the total profit you make on your home sale.
What is the average real estate commission rate?
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: 4.72%
- Bakersfield, California real estate commissions: 5.36%
- San Diego, California commissions: 4.92
- Atlanta, Georgia commissions: 5.98%
- Washington, DC commissions: 6.0%
- Fort Lauderdale, Florida commissions: 5.98%
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 typically takes a 50% cut of the total commission fee. In addition, both the buyer’s agent and the listing agent will pay a portion of their commission to their companies for brokerage and desk fees.
How much can I save with a 2% real estate commission?
In a 2% real estate commission scenario, the 2% commission fee only applies to the listing agent’s commission. It’s important for a seller to understand that the commission paid to the buyer’s agent doesn’t disappear. Your listing agent may recommend that you also pay the buyer’s agent anywhere from 2% to 3% in commissions.
For example, if the average commission in your area is 5.8%, you may pay 2.9% (50% of 5.8%) to the buyer’s agent on top of the discounted 2% fee paid to the listing agent, for a total of 4.9% commission. 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.
In the chart below, we show you the total commissions you’ll pay with discounted 2% listing fee and a 2.5% buyer’s fee. The actual amount you’ll pay a buyer’s agent depends on what’s typical for your area and the rate you agree to pay. (As we discuss later, you can negotiate a buyer’s commission that is lower than the average rate, but there are risks.)
|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.
Can you pay a 2% commission to the buyer’s agent as well?
As we mentioned earlier, you can negotiate with your listing agent to pay a reduced commission to the buyer’s agent. It may seem that cutting the fee you pay to the buyer’s agent doesn’t affect the listing agent, but this isn’t necessarily true. The buyer’s commission is published in your home listing, which may make your home less appealing to the buyer’s agent. For this reason, cutting the buyer’s commission may make it difficult for the listing agent to sell your home.
“When an agent sees the 2% commission split in the listing, they’re not going to prioritize it over a 3% listing. They’re going to go where they can make their money,” explains Hill.
Why would an agent offer a 2% commission?
Avalos, Valiente, and Hill agree that a top-producing agent would not be as 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 level of service they expect — and that’s not possible when cutting huge corners with commissions.
However, there are certain situations in which an agent might work for a lower commission, such as:
The agent doesn’t need to put in as much work
If you’re selling your home during a hot market when homes sell fast, the agent may not have to invest as much time or effort in completing the sale. The same is true if you have an in-demand home. If your home is in a desirable location, has an attractive listing price for a select buyer pool, or has a high level of coveted upgrades, an agent may consider it an easy-to-sell prize.
An agent may also consider a reduced commission if you have the time, experience, and willingness to take on a portion of the work. There’s a lot involved in the selling of a house, but if you’re a professional photographer, videographer, interior decorator, or digital marketer, and you’re a go-getter who wants to be more involved in the sale, an agent might cut you a deal.
The agent doesn’t intend to put in as much work
Valiente 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.
The agent needs experience
An agent’s main motivation in offering a reduced commission rate is often 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 a bevy of great client reviews. Instead, they may lower their rate to make the risk of underperforming worthwhile to their client.
We recommend that sellers know how many transactions are average for their area and how many transactions their agent has under their belt. According to the National Association of Realtors (NAR), the median number of transaction sides in 2021 was 12 units per Realtor®, which includes buy-side and sell-side transactions. How many transactions a top-producer closes depends on what’s typical of their local market and the brokerage that they work for. It could be 40-50 sell-side transactions in some areas, or it could be over 100 in a busy local market.
“I checked out one brokerage offering 2% commission, and they have 25 buy-side and 25 sell-side transactions for the year with about 10 agents,” explains Hill. That’s a low number for Hill’s Montgomery, Alabama area.
Fewer homes are being listed
Similar to other sales industries, there are times when supply is low. The 2% commission can give an agent an edge in a competitive market where inventory is low and other agents are clamoring for limited listings. Fall and winter are traditionally slower when it comes to the number of properties being placed on the market. During this offseason, or during a hot market when there’s an inventory shortage, agents may be competing for seller clients and be more willing to accept a lower commission.
Your home has a high listing price
If you’re selling a luxury home, a home in an area where the average market value is high, or a home with lots of upgrades, the agent stands to make a good commission even at 2%. In fact, an experienced agent may offer a discounted rate to sell a luxury home, so it’s a good idea to check your local brokerages before you look into a discount brokerage.
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 provides for the reduced rate 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, professional staging, 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 (multiple listing service) listing and bare-bones representation, and you have the experience to provide 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 to 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 are the top criteria people consider as they make their spending decisions. The general rule is you can’t have all three. Although there are exceptions to this rule, typically you sacrifice one for the other. When you opt for cheap or fast, you don’t always get quality. So if you prioritize a lower commission fee in your agent search, quality and speed could be affected.
Here are the top risks to consider in working with a 2% commission agent:
You lose in negotiations
Avalos 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. The buyer will likely end up bringing down the price, which could offset the savings from the lower commission,” explains Alvaro.
You don’t receive dedicated service
An agent who offers discounted rates across the board may need to take on a larger number of clients to make up the difference. If that’s the case, they might have to allocate less time and attention to each client. This may mean that they could be slower to respond to your communications and offer less guidance than you expect.
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 may be disappointed by what you’ll get in exchange for the 2% commission.
When you pay an agent the full commission rate, you typically can expect dedicated services. A dedicated agent will thoroughly research the comparative market analysis (CMA) they use to help you price your home. They’ll walk you through the sale, provide recommendations that will smooth the process, advise you on the pros and cons of each offer you receive and each step you take, and provide expert advice through any rough spots of your transaction.
“I do my CMAs by hand and it takes me three days before I get a price back to the seller. I don’t just pull tax records, slap a price on it, and move on. I’m going to do my calculation and compare it against what the computer says, then I’ll go back and pull costs from the neighborhood specifically. I’m evaluating the lot, the acreage, the upgrades, and the updates,” says Hill.
A real estate agent fully dedicated to your needs will pull out all the stops to make sure you have a satisfying sale. You may even be able to ask them 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 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, coffee shops, 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 spot-on pricing, strategic prep, and a strong 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 shows that top agents consistently earn their seller clients more than their peers, helping to offset and even exceed their commission fees.
How does a 2% commission compare to a 0% commission (flat-fee service)?
You could ditch the listing commission altogether and pay a flat 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 a more prominent placement.
The biggest caveat here is that you won’t have a dedicated, personalized resource to help sell your home. This option is typically a resource that benefits for-sale-by-owner (FSBO) sellers. Once your home is 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, using a flat fee listing service might require more time, knowledge, and energy than you’re able to commit. In addition, data from NAR indicate that FSBO homes sell for 11% less than homes sold by real estate agents, so it could be a wash as to whether you’d actually save money by taking on all the work solo.
What about agents whose rates are under 2%?
While there are discount brokerages and low-commission agents that 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, and some may cut certain services with their rate.
For example, a discount brokerage that offers a 1.5% commission may consider products and services that are standard with a full-commission agent as optional add-ons for which you’ll pay an upcharge. This may include a yard sign, a lockbox, photo or video services, staging, etc. While they may list your home in the MLS, post your listing across their own real estate channels, and oversee the documentation, they may not provide in-person representation or devote any time or money to drive buyers to your listing.
Are there other ways for sellers to save money in the transaction?
The good news is that a homeowner can still save money in the sale of their home with a full-commission agent. Some of the ways our experts recommend sellers cut costs include:
- Selling a home that’s in poor condition “as is” to eliminate the cost of repairs
- Negotiating for the buyer to pay a portion of the closing costs, which could include commissions
- Capping repairs at what is required by the lender
“I tell my sellers to make the [lender-required] health and safety repairs and then offer a home warranty because it’s cheaper,” says Hill. More information about how home warranties can save you money is available here.
A top agent may save you money in the long run
While a 2% commission rate may seem appealing at first, the bottom line is that you may lose value – and money – in a cut-rate deal. Based on these insights from our experts and transactional data, hiring a full-commission top-performing agent may give you the best chance at a highly successful outcome. In addition, having a proven, experienced real estate professional in your corner means you can expect to receive dedicated service and guidance throughout your transaction.
If you’re looking for a top agent who will guide you along the way and help you get the best price on your home sale, we’d love to connect you to an agent with a track record of satisfied clients. Our service is completely free, and in two minutes, we’ll recommend the best agents near you.
Header Image Source: (Cytonn Photography / Unsplash)