It was awkward. And, I have to admit that I was the one at fault. I read on the internet that you should haggle with real estate agents about their commission. So I did. Her reaction was polite and professional, as anyone would expect—I’m sure that I’m not the only who one tried this. You see, I like to save money whenever I can. But, I also believe in fair compensation. This whole episode led me to perform some research on what real estate agents should really be paid. I’d like to save you the embarrassment I experienced, so let me fill you in on what I discovered and what you can expect if you work with different brokerages.
How Real Estate Commissions Are Structured
The popularity of the internet as a public information tool has spurred the development of many real estate brokerage models with varying commission structures. With the rise of discount brokerages, the standard 6% commission rate seems to be going the way of the Dodo. According to a RealTrends survey of 450,000 agents, the actual national average commission was 5.26% in 2015—and, although last year’s numbers are not in yet, the average is expected to continue declining. In order to help full-service brokerages keep up with the competition, some states have repealed their previous bans on brokers providing consumers with commission rebates. This gives consumers more of a choice in terms of their desired level of service and their preferred real estate firm model.
Let’s take a look at some of the most popular brokerage models and how they work.
These brokerages offer real estate services a la carte. Some will only provide the bare minimum, like listing your investment property on the MLS, while others will consult on the home pricing or they’ll assist with contract negotiations with the buyer. Often you will be expected to take your own photos of the home (or hire someone else to do it), answer questions from buyers, and handle the showings.
Fee-for-service commissions can range from a few hundred to a few thousand dollars, depending upon the services rendered. Beware, however, that you will be expected to compensate the buyer’s agent out of your own pocket in addition to the commission paid to a fee-for-service brokerage for helping you sell. Ethical Realtors who work for a flat-fee brokerage should not refuse to show your home as a result, however, they may be less inclined to promote your home’s highlights in comparison to others on the market.
Many of these brokerages claim to offer full service at a discounted rate, though what that service includes may change from broker to broker. Generally speaking, they will help you decide on a price, offer home staging advice, list your investment property on the MLS, and provide you with a yard sign. Others may also show the house to prospective buyers and manage contract negotiations.
If you opt for a flat-fee brokerage, there’s a good chance that you’ll be tasked with hosting your own open houses and developing your own marketing collateral. Expect to pay anywhere from $2,000 to $6,000, with extra commission added in cases involving high-priced and luxury properties. And, as with the fee-for-service model, you will need to pay a competitive commission to the buyer’s agent.
A full-service brokerage will hold your hand through every step of the home selling process. Realtors at full-service brokerages will spend a lot more time creating marketing collateral for your house, answering queries from prospects and their agents, holding open houses, and handling the sometimes-sticky negotiations. All of the marketing, including photography, is covered under the umbrella of services. In addition, many experienced full-service Realtors will be able to point prospective buyers in the direction of financing resources, home inspectors, repair professionals, and local resources in an attempt to keep the transaction moving forward.
Typically, a full-service brokerage will take a commission of five to six percent of your property’s sale price, with half going to the seller’s agent and the other half going to the buyer’s agent. Out of that, each brokerage will compensate their agent with the amount they have negotiated in-house. What the agent actually pockets can vary widely as some brokerages take a percentage cut while others will also take out any fees the Realtor owes for items like access to their software subscriptions, administrative services, or even office space rental.
Which Kind of Agent Should I Choose?
There are many factors to consider when choosing a real estate agent, with the most important issue surrounding your own experience. When I made the blunder of trying to talk a Realtor out of her money, I really wasn’t prepared to perform all of the tasks that real estate agents typically handle. Photography? Home staging? Open houses? I was just a novice investor. But now, as a HomeVestors® franchisee, I have lots of additional experience under my belt and I am able to take a more active role in the home selling process. My real estate agent provides the services I need at a rate that I don’t mind paying because it pays dividends in the end.
I would love to tell you about how I found this balance. Just get in touch and let’s have a chat!
Each franchise office is independently owned and operated.
HomeVestors of America® is the nation’s only real estate investing franchise, providing wonderful business opportunities to real estate and investment professionals across the nation.