How to Pay Less Real Estate Commission
When listing your home for sale, most sellers must consider the fees paid for the transaction. These fees can include mortgage discharge costs, legal fees, as well as inspection and moving costs, but the largest fee a seller must pay is real estate commission.
This is the fee paid to each real estate agent and is typically calculated as a percentage of a property’s sale price. In virtually every standard sale transaction, the seller is required to pay the real estate commission, which is split evenly between the listing and selling agents. For example, if the commission is 5%, then each agent would receive 2.5%.
To help you pay less in real estate commissions, consider these three options.
#1: Negotiate A Lower Realtor Commission
While real estate commissions are standard, they are not fixed. That means the real estate commission you pay is negotiable.
It’s best to negotiate lower real estate fees when first interviewing potential real estate agents to work with in selling your home.
During these interviews, ask each agent what is their standard realtor fee and then ask what it would take to reduce these fees. Keep in mind that not all real estate agents are willing to reduce their sales commission—and some have legitimate reasons for refusal—but it never hurts to ask.
Shaving just 1% off the average 6% real estate agent commission could save you $4,000 on the sale of a $400,000 home. Unfortunately, not all realtors are receptive to the idea of dropping their rates.
A study by Consumer Reports found that only 46% of U.S. sellers attempted to negotiate a lower commission. Of those who did, just 71% succeeded.
In Canada, real estate agents can be less receptive to negotiating, particularly in hyper-competitive markets.
Cris, a Vancouver resident, recently sold his home. Prior to listing the property, he called 10 realtors and asked each to lower his or her commission rate.
Cris found that half of those asked immediately refused and, he recalls, “They were surprised I even bothered to ask.”
Two of the Realtors, Cris spoke to agreed to drop their rates, but both refused to shave anything off of the buyer’s side commission—the portion that goes towards paying the buyer’s agent. In fact, Cris was told by one Realtor that a move like that is considered “career suicide.” Apparently, any attempt to lower a buyers’ agent commission will prompt agents to avoid showing the property to potential buyers.
Eventually, Cris was able to negotiate a 1% reduction in fees on the seller’s commission—for a $6,000 saving—but only because he agreed to let the listing agent also act as the buyer’s agent. (A practice that is now illegal, but was still allowed at the time.) Needless to say, this experience “forever left a bad taste in my mouth,” says Cris.
Obviously trying to negotiate the fee down can be a big hassle, but if you can pull it off, the service you get won’t suffer.
A Boston study found that lowering commissions to 2% had a negligible impact on both sale price and the time-on-the-market—even though the seller could save $10,000 or more in commissions.
#2: Consider a Flat-Rate MLS Brokerage
It took Pat O’Sullivan 379 restless nights before he finally worked up the nerve to sell his Calgary townhouse. In the end, it was a desire to be closer to his son that prompted Pat to sell his home. However, once listed, Pat’s unit sold in just two days.
While Pat was thrilled to sell so quickly, and for more than list price, he couldn’t help but wonder, “What did my realtor do for her $18,250 commission in those 48 hours?”
Competition Bureau Helped Cut Realtor Commissions
More than a decade ago, Canada’s Competition Bureau examined whether or not real estate agents offered good value to consumers. At the end of their investigation, the Competition Bureau found that most Canadians felt trapped. There were no alternatives to paying full commission rates for a full suite of services.
The Competition Bureau’s investigation forced changes and a few months later some full-service real estate brokerages in Canada began to offer flat-rate fees and services à la carte.
This meant that sellers didn’t have to work with only a full-service brokerage for a standard real estate commission. Instead, they could pay a flat fee to list their property on the popular Multiple Listing Service (MLS) website (where more than 90% of buyers search for sale properties).
One of the first to offer flat-fee MLS listings was Joe William of Ottawa’s Best Value Real Estate. As soon as the Competition Bureau announced the option for flat-fee real estate services, more than 10 years ago, William began offering clients the option to list on the MLS for just $109.
For home sellers, the option to pick and choose the services required to sell a property is ideal, since it gives them the option to pay for what they need and save money on services they don’t require.
#3: For Sale By Owner (FSBO)
But à la carte or flat fees aren’t the only options for saving money. Another option is to completely omit the Realtor (and the fee) and opt for the grassroots For-Sale-By-Owner (FSBO) method.
The cost of posting a listing on websites such as ForSaleByOwner.ca and PropertyGuys.com ranges from free to just over $2,000.
Like the MLS, these dedicated Internet portals allow homeowners to include descriptions, photos, prices and contact information.
Just be careful. Studies show the average sale price of a home sold through FSBO is higher than the average sale price of a home sold through MLS—but it takes longer, on average, for a FSBO home to sell.
Turns out FSBO homes stay on the market significantly longer—anywhere from 60 to 90 days, compared to 35 to 68 days on MLS.
Another factor to consider is that the pool of buyers, and sellers, is much smaller on FSBO sites—only 7% to 10% of buyers and sellers use FSBO. This means a smaller pool of potential buyers for your property.
