Real estate commissions can significantly impact the cost of buying or selling a home. With recent changes in the industry, including new rules from the National Association of Realtors (NAR) that took effect on Aug. 19, it's more important than ever for buyers and sellers to understand how commissions work and how they can be negotiated.
In this article, we will explore five key aspects of real estate commissions that every home buyer and seller should know, including tips on negotiating fees.
How Does a Real Estate Commission Work?
Real estate agents typically work on a commission basis, meaning they don't earn a base salary. Instead, they receive a percentage of the home's selling price as their fee. This commission is usually split between the buyer's agent and the seller's agent.
It's important to note that agents only get paid when a transaction is completed, which means they often work many hours without a guarantee of payment.
What Is a Typical Real Estate Agent Commission?
While commission rates can vary, they typically total 5% to 6% of a home's selling price. For example, on a $450,000 home, the total commission would be around $22,500 to $27,000.
Who Typically Pays for Real Estate Commissions?
Historically, the seller has been responsible for paying the entire commission, which covers both their agent's fee and the buyer's agent's fee. However, new NAR rules require buyers to sign agreements with their agents that could make them responsible for their agent's commission if the seller doesn't cover it. This change is designed to create more transparency in the commission process and potentially lead to more competitive pricing.
READ MORE: Here's Everything That Will Change for People Buying and Selling Real Estate Properties
Can You Negotiate Real Estate Agent Fees?
Yes, real estate commissions are negotiable. In fact, recent changes made by the NAR now require that buyer representation agreements clearly state that commissions are negotiable.
How To Negotiate Commissions
When negotiating commissions, consider the following strategies:
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Offer more than one listing opportunity, if possible: If you're selling multiple properties, you may be able to negotiate a lower commission rate, especially if you hire the agent to represent all transactions.
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Recommend the agent to others in your network: Agents value referrals highly, so offering to recommend them might lead to a more favorable commission rate.
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Lower the fee if your home is in a sought-after area: If your property is likely to sell quickly due to high demand in your area, you might be able to negotiate a lower commission.
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Have the agent represent you in both sale and purchase transactions: If you're both selling and buying a home, using the same agent for both transactions might lead to a discount on commissions.
It's important to note that while these new rules and negotiations can potentially lead to lower costs for buyers and sellers, they may also create some initial confusion in the market. It is also important to note that buyers and sellers can forego hiring a real estate agent. However, we do not recommend this option to those who have no prior experience.
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