February 7, 2018
The concept of a “Standard Commission” rate is a bit of a misnomer, and reflects a common misunderstanding amongst consumers and Sellers when it comes to selling or buying a home.
Plain and Simple, ALL Commissions are Negotiable.
This is from the Federal Trade Commission‘s Website, and their study on Real Estate Competition:
“Because buying a home is the single most important purchase many consumers will make, the Federal Trade Commission has enforced antitrust rules in the real estate business to make sure that increased competition continues to lead to more choices, better prices and stepped-up services for buyers and sellers. For instance, the Commission challenged a number of restrictive rules adopted by Multiple Listing Services (MLS) to keep low-cost and discount brokers off MLS listings and popular websites listing homes for sale.”
Unless you have negotiated the commission fee that you will pay your Agent, you can assume that in most parts of the US, including California, that you will be paying 6% of the final negotiated Selling Price of your Home.
In California, the Listing Agreement is between the Seller and the Broker who will list the Property for sale on the local MLS. Your “Agent” is typically an independent contractor working for the Broker, under an agreement that establishes how much of the commission the Agent will receive when the Sale Closes. This can range from 50% to as high as 95% for very high producing Agents, but for simplicity sake lets’ say the Agent gets 70%. The amount of the commission that will be paid to the Buyer’s Broker (and will be posted in the listing for your property on the MLS as “CSO” or Commission to Selling Office) will also be in your Listing Contract and you should pay close attention to that figure as well.
There are basically 4 points of negotiation for your Listing Agreement that you should pay attention to:
- The Listing Commission. This is usually the only place that you can get an Agent to negotiate on, but you will frequently find them reluctant to do so. Most of the time their “starting ask” will be 3% of the final sales price. In my experience, this can be negotiated down to between 2% to 2.5%, depending on the price of the property, the condition of the property (an “easy sell” vs. a long hard effort) and well as the overall conditions in your market.
- The Selling Commission. You should have a frank discussion with the Listing Agent about the Selling Commission that will be offered on the MLS. Many times an Agent will say that if they offer less than 3% then “it won’t be shown” and Buyer’s Agents will not take their clients to see your home. In my experience, this depends on the price point of the property and the condition of the market. In a Seller’s Market with a lot of competition/offers on properties, this condition favors offering less than the full 3%. But your Agent should be able to show you what’s being offered on the Market and you can decide together if a full 3% serves your best interest.
- Dual Agency. Depending on market conditions, there will be times that the Agent you list with “already has a Buyer” or will find a Buyer sometime during the Listing period for your home. If your Agent represents “both sides” he or she will get both sides of the commission. You should be able to get a deal from the Agent on the total commission if you end up in Dual Agency.
- Multiple “Legs”. If you’re going to use the same Agent to Sell your home to represent you on the Purchase of your next home, you should be able to get a deal from the Agent on the Listing commission for your home, or possibly a rebate on the commission they will earn when they represent you on the purchase of your next home.
Mark Wilson is a licensed California Real Estate Broker and is the Co-Founder of ListingBidder.com.