by Neil Jenman
Reading time: Apx 5 minutes
Real estate involves negotiation. Knowing the basics of negotiation can add tens of thousands of dollars to your selling price.
It can also save you thousands of dollars on your expenses.
The biggest expense when selling a home is usually the real estate agent’s commission. And too many sellers pay too much commission. Especially first-time home sellers or those with little or no experience of selling a home because they don’t know how to negotiate with a real estate agent.
This article is written to show you, the home seller, how to negotiate commission with a real estate agent – and avoid hidden costs.
Real estate commission is the amount paid to sell your property. All agents have standard commission rates which are always negotiable.
Commission is usually based on a percentage of a home’s price. Although it averages 2 per cent, it can be as low as 0.5% or as high as 5%. Rates vary with different agents and areas.
Some agents want a bonus commission. If they sell your home for more than you expect, they expect a higher commission – sometimes as much as 20 per cent on the extra amount.
Some agents call this a “kicker commission”; it kicks in at a higher price.
Warning: Don’t get kicked with a kicker commission. 117w
Many years ago, governments and territories deregulated real estate commission. Home sellers can now negotiate cheaper commission rates.
When negotiating, be firm and fair. For example, if an agent wants you to drop your price, they should drop their commission. You get less; they get less. That’s fair. That’s how to negotiate with a real estate agent.
And remember: The more valuable a home, the less percentage you should pay. After all, it usually takes no more time to sell a home for $10 million than for $1 million. So, don’t pay ten times the commission for the same work.
Agents expect sellers to negotiate commission.
Salespeople know this famous quote: “If you don’t ask, the answer is always no.”
So be sure you ask.
Never ask for a discount too soon.
To get the best price – you need the best negotiator. If an agent can’t negotiate a good commission for themselves, they will hardly negotiate a good price for you. Indeed, if the first thing an agent does is drop their commission, they may be the worst negotiator. Cheap agents get cheap prices.
But here’s the catch: You never know how good an agent is until they’ve found buyers for your home.
Here’s what to do: Tell the agent that if they get you a good price you will pay them a good commission. Keep them motivated with the promise of good commission for a good sale price.
All commission is negotiable until the point of sale – so that’s when you should negotiate the commission.
When it comes to knowing how to negotiate commission with a real estate agent, the saying “knowledge is power” is vitally important. Here are 7 points to help you.
✔ Interview two or three agents. Don’t sign anything – you are just researching.
✔ Ask about extra costs.
✔ Beware of agents who want you to spend thousands of dollars advertising.
✔ Obtain the booklet ‘The 42 Rules of Modern Real Estate Negotiation’. Rate each agent on their knowledge of these rules.
✔ Reject unimpressive agents.
✔ Find an agent who only charges upon success. They do exist.
✔ WARNING: Reject agents with whom you can lose thousands of dollars if they don’t sell your home.
✔ Make it clear that you will sell your home. This assures the agents that they will get paid. It makes them keen to win your business. And willing to consider reducing their commission.
✔ Avoid phrases like, “We are not in a hurry” or “We’ll only sell if we get our price”.
✔ Never be rude. Be firm, fair and friendly. People try harder for people they like – that includes agents.
✔ Ask them why they feel they are worth more than other agents offering cheaper commission rates.
✔ Ask them to give you examples of their negotiation skills. Unless you are impressed, it’s unlikely that their skills are special.
✔ Ask about off-market sales.
✔ If a bonus scheme is discussed, be careful. Unless you are experienced, you should get expert help to navigate the many pitfalls of such schemes.
✔ Be sure to ask the 7 Questions that test their negotiation knowledge and skill.
As mentioned, cheap agents rarely get high prices. But even worse would be an expensive agent who gets a cheaper price. It happens often
It cannot be overstated. Only negotiate commission once you’ve seen the price the agent has negotiated for you.
Many sellers are now writing these words next to the commission section in the agents’ listing contracts: “AGENT AGREES THAT COMMISSION IS NEGOTIABLE UNTIL THE POINT OF SALE”.
If an agent refuses to agree to such a condition, find another agent.
For more information see our latest Home Selling Guide.
It is critically important that you are satisfied with the real estate commission rate before you sign a contract to sell your home. Once a contract has been legally signed up (known as “exchanged” in some states) it can be near impossible to negotiate the real estate commission.
In the meantime, you can obtain additional help from your state’s Fair-Trading Offices or Consumer Affairs Departments.
All commission is negotiable in all parts of Australia. If an agent tells you that their commission is not negotiable, that’s not true. All agents, at some stage, have lowered their commission. Indeed, in many cases, if they didn’t lower their commission they wouldn’t make a sale.
Real estate commissions have exploded by around tenfold in the last 30 years. The wages of the average workers have barely trebled. The average commission charged by the average agent is now enough to buy a new car – sometimes a very flash car.
In one case, a man sold his family farm in Queensland. The agent generously gave the farmer a discount in commission – from $700,000 to $600,000. The buyer was the neighbour.
But, if you know how to negotiate commission with a real estate agent, you’ll likely be thousands of dollars better off.
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Lex Wilkie says:
Having bought and sold many properties as an investor I can endorse Mr. Jenmans comments 100%. Property are big ticket items and small percentages matter a lot. The MOST important issue is NEVER feel pressured when making big decisions. That alone has cost me dearly. I have easily lost $ 100,000 + on “deals” I don’t trust MOST agents. I do trust Mr. Jenman, a very rare man in the cut throat Real Estate world.