When you’re looking for a home to buy, you’ll probably notice someone who hangs around near you, being extremely helpful and knowledgeable, and pointing you to some great places, based on an extensive understanding of your goals and dreams. That person is a buyer’s agent.
Now look at the nearest reflective surface. See that person? That’s the buyer (you).
So, let’s think about this helpful real estate agent showing you around. Are they doing it as a hobby? Out of the kindness of their heart? While they may love it, they earn a living doing this. But how exactly they get paid might seem a little mysterious.
Buying a home can be stressful — and expensive. It’s only natural that you may be wondering if you can negotiate Realtor® fees to your advantage and save some money.
So we looked behind the curtain at real estate commissions and consulted Andretta Robinson, a northern Illinois real estate agent with 15 years of experience, to help walk you through the strategy and etiquette of negotiating agents’ fees as a buyer.
First of all, you might not need to worry about it
Regardless of whether an individual’s professional designation is a licensed real estate agent or a Realtor® (a Realtor® is a licensed agent who is a member of the National Association of Realtors), most agents are paid through commissions, which are a percentage of a home’s sales price. The seller covers both the seller’s agent’s fees and the buyer’s agent’s fees in most cases. In fact, a 2020 NAR study found that 77% of sellers reported paying for agents’ fees. The commission percentage itself can change from year to year and transaction to transaction, but the average commission has remained between 5% and 6% for nearly a century. The home price includes the fees, and the two parties’ agents usually divide them 50-50.
Q) What is the standard percentage that goes to that fee?
A) There isn’t one. That would be price fixing.
What’s price fixing?
There’s a lot you want to make sure is fixed before you buy a home. “Price” is not one of them, at least with regard to commission fees. In fact, brokerages are forbidden from establishing set sales commission percentages.
Why the vagueness? Can’t brokers make it clear and easy by setting a standard percentage for their fees?
The Sherman Antitrust Act prohibits agreements that stifle competitive pricing. If agents on the seller’s and buyer’s sides set a standard rate, that would take away your ability, as a consumer, to negotiate and shop around for a more affordable experience.
The advantage of the antitrust policy is that it allows you some control over commission rates. The downside is that it may leave you in the dark as to what the first step is if you want to discuss fees. We’re here to help.
Why would a buyer negotiate fees?
As mentioned above, the seller usually handles the fees and, therefore, the negotiations. But that’s not always the case. Sometimes a buyer may offer to cover the fees to edge out their competition, and on occasion agents may find themselves in a position where they’re asking the buyer to cover fees. Robinson says she’s been in this situation.
“During the era of the foreclosure market and short sale market, which was in 2008, the price points for the homes were pretty low,” she says. (You may remember 2008 as not the happiest time in real estate history.)
Lower-priced homes mean lower agents’ fees, so in some cases the home prices during that time fell so far that the fee dipped below a level Robinson was comfortable with. “I would go to the buyer and ask the buyer to cover the difference of the fee,” she says.
Regardless of the listing price, a home sale requires the same amount of skill and work from the agent. That’s important to remember when talking about commission. What homework does Robinson wish buyers did before approaching price negotiation?
“It’s all about value,” she says.
“If they don’t understand the value of what my services are, I will pull out my list of values, show them my hundred-point list of things that take place during a transaction, and usually when I finish with that, they understand why I’m asking for the commission.”
Is this “hundred-point list” a literal list Robinson has?
“Yes it is.”
Can we see it?
Unfortunately, no. It’s proprietary. But suffice it to say…
Your buyer’s agent does much more than show houses
What you see firsthand of the buyer’s agent’s job is merely a fraction of the work they do. They develop a deep familiarity with the neighborhoods, the markets, and the tastes and needs of the buyer before the two of you even set foot into a property.
“Let me tell you what my motto is,” quips Robinson. “My motto is, ‘A monkey can show you a house,’ ok? Take a monkey by the hand and make him show you a house — that’s not what our job is.”
In fact, the list of buyer’s agent responsibilities is quite extensive. Here are just a handful of what agents’ duties are for each home sale:
- Search the MLS
- Schedule showings
- Walk buyers through the homebuying process
- Write up offers and counteroffers
- Attend home inspections
- Help buyers at the closing table
When Robinson shares her list of values with a client, “I’ll just break down everything I do, from researching the properties that they want to view, to researching values, to researching neighborhoods, to researching — the research alone can take up 10 different items by itself, sometimes 20.” And a good deal of it goes on before the agent sees a penny.
In addition to the agent’s time, real estate commissions also cover many costs and fees, including:
- Marketing fees
- MLS fees
- Business licenses
- Professional dues
This absolutely does not mean you shouldn’t try to negotiate — you have nothing to lose by asking, or by walking away if you’re not satisfied. Just know what you’re asking for.
Other negotiation opportunities
Do your homework
Before you negotiate Realtor® fees, it’s important that you do your research to understand the local housing market. Sales prices and housing inventory levels can directly impact the amount of leverage you have for negotiations, as will seasonal sales trends in your area.
It’s also essential to know what the average commission fee is in your area to make sure your ask is reasonable. Additionally, consider the amount of experience an agent has, the types of services an agent offers, and how much time you’ll demand of your agent.
Buyer representation agreement
A buyer representation agreement is a contract signed between the buyer and the buyer’s agent and it forms an exclusive relationship between them. This may create an incentive for the agent to put more effort into helping you, since the agent knows you’re not going to switch agents after they put in hours of hard work and research. This is an opportunity for you to negotiate the fees and commission percentages before you even decide on a purchase.
One way you might save on fees is to use the same agent to represent the seller and the buyer! That way there’s one agent instead of two, so the fee can potentially be lower.
This is called “dual agency,” and heads up: it’s controversial (to the point that at least one consumer advocate organization warns buyers and sellers never to agree to it).
While working with a single agent can help streamline the home sale process, the potential drawbacks, essentially, are that the agent can earn twice the commission with half the incentive to help. If an agent is beholden to both sides of the transaction, they need to remain neutral and are prohibited from doing anything to the detriment of either party. Dual agency with an unscrupulous agent could create a conflict of interest that can weigh hard on the buyer, the seller, or both. Because of this potential conflict of interest, dual agency is actually prohibited in nine states and a clear, upfront disclosure of the dual agency relationship and express, written acknowledgment by all parties is generally required in states where it is allowed.
However, if you work with an experienced and ethical agent, dual agency can work to your advantage — all the more reason to do as much research as you can on agents before you decide on a particular one.
Some real estate brokerages specialize in low-cost, no-frills service. What’s the downside? It depends on what you consider to be a “frill.”
A low base rate from a discount brokerage can be a basic package that simply includes an MLS listing, but doesn’t include help with contract, negotiations, closing, or any other aspect of the deal.
As with anything — real estate and otherwise — you get what you pay for.
Your friends can be your referrals
If you have acquaintances who are also looking to buy a home, you might dangle them as referrals for your buyer’s agent. More clients for the agent means more opportunities to earn commissions, and your house-hunting friends might be an incentive for your agent to trim that fee.
The bottom line
Can you negotiate Realtor® fees? Yes, it’s possible. It’s rare that you’ll be in a position to pay them directly when you’re buying a house, but like every step in the real estate world, it’s worth investigating ways to save some money, as long as you keep your eyes open.
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