It’s negotiable.
You are about to list your property for sale with a realtor. You ask “what is your commission?” The answer you get is “It’s negotiable”. Now what?
The realtor is not dodging your question. It really is negotiable. It is against their ethics to tell you that a certain percentage is “the going rate”. There are strict guidelines for realtors to follow concerning price fixing and anti trust laws.
I have seen commission agreements between 2% and 10%. In my area, full service realtors generally operate between 5% and 7%. I have seen a few 10% listings for modestly priced co ops, which involve a lot of patience, a lot of work, and are priced less than the average house or condo. I have seen some full service brokers take a listing for a luxury property at 4.5% in a competitive market. Discount realtors in my area are 4% and below. In other areas in the US, full service brokers tell me their compensation is anywhere between 5 and 10 percent, depending on the property, the price, and the level of service required to sell at the optimum price.
In most areas in the USA, the commission the seller pays is split several ways. If another agent or brokerage brings a buyer to you, a portion of the commission you have agreed to pay your broker will be paid out to the cooperating broker. Also, a portion of what you pay is split between the agent and their sponsoring broker. If the agent obtains your listing or a buyer through a referral or relocation network, a portion of their commission will be paid as a fee to the referring broker.
If the agent gets both ends of the deal, bringing you a buyer, they are well worth the full commission, since they will be doing double duty. They also may be involving the services of another agent or broker in their office so that all parties are fairly represented, depending on the laws in your state. In some states, dual agency (fully representing both parties) is allowed as long as it is disclosed. In others, the agent’s status reverts to that of a transaction agent, doing what is necessary to bring about the transaction. We will explore types of agency in a separate article.
In some parts of the country, commissions are so deeply discounted I wonder how the brokerages can keep their doors open. Listings with 2% commission agreements are seldom offered to cooperating buyer brokers on the multiple listing system – when they are, the compensation is often as low as half of one percent. While buyer agents will show the property, they often will not show it first! While the advertising can appear slick, the actual level of service an agent or broker can realistically offer at 2% is pretty low. You will likely do much of the showing yourself, conduct open houses yourself, and your advertising will be limited to the broker’s website and some very nice flyers. For 2%, you may be further ahead actually selling it yourself.
Some discount brokers will guarantee your listing is on the multiple listing system for an additional 1 percent. They then offer that 1 percent to cooperating buyer brokers. Since the average compensation for a buyer broker is usually more than that, you are likely to not see much enthusiasm for your property among other realtors.
Marketing the property and attracting a buyer is only part of the job of a competent full service realtor. You are paying for expertise in market trends, negotiation, and keeping the contract on track as well as advertising and showing. As with any professional service, when it comes to commission, you get what you pay for.
When you interview realtors for the listing of your property, consider the range of percentages they ask for, and find out what they expect to do. Ultimately, if the commission percentage is within reason, you should make your decision based on the level of service you expect and need.