Selling a home can be a moving experience, so choose your REALTOR® wisely. In recent years, the rise of low-commission Realtors has captured the attention of many sellers looking to save money on their home sales. However, what may seem like a cost-saving measure can actually end up costing sellers more in the long run?
According to CNN Business, the median commission rate for real estate agents in the US is around 5-6% of the sale price of the home. While this may seem like a significant amount, it’s important to consider what that commission fee covers. Real estate agents are responsible for a range of tasks, including marketing the home, coordinating showings, negotiating offers, and navigating complex legal and financial issues.
Despite the clear value that real estate agents bring to the table, low-commission realtors are becoming increasingly popular. These agents offer to sell homes for a reduced commission, often around 2-4% of the sale price. While this may seem like a great deal for sellers looking to save money, the reality is that working with a low-commission realtor can lead to sellers netting less money from the sale of their homes.
What’s The Average Real Estate Commission?
The real estate industry operates on a commission-based model, which means that agents are paid a percentage of the sale price of the home as their fee for services rendered. The national average commission rate for real estate agents in the United States stands at 5.8%, and this figure has remained relatively constant for decades. However, it’s important to note that this is just an average and that individual agents may charge different rates.
Real estate agents typically charge around 6% of the sale price of the home, which is split between the seller’s agent and the buyer’s agent. For example, if a home sells for $500,000, the commission fee would be $30,000, with $15,000 going to the seller’s agent and $15,000 going to the buyer’s agent.
While the national average commission rate is around 5.8%, agents tend to hover around the average for their specific area. Charging above the average can make it difficult to secure listings while charging below the average can make it seem like the agent is offering a subpar service. Despite this, some agents will choose to undercut the lower commission rates as a way to differentiate themselves from the competition and win business.
Read more: What Does a Realtor Do? A Day In The Life
What Are Low Commission Real Estate Agents?
A low-commission real estate agent is an agent who charges a reduced commission rate compared to the standard rate in their area. The standard commission rate for a real estate agent in the United States is typically around 5-6% of the sale price of the home. However, a low-commission agent may charge as little as 2-3% of the sale price.
It’s important to note that while a low-commission agent may offer a lower rate, they are still subject to the traditional commission structure in the United States. In this arrangement, the listing agent, who works for the seller, usually shares their commission fee with the buyer’s agent.
The commission fee is usually split 50/50, which means that if the commission fee is 6% of the sale price of the home, the listing agent would receive 3% and the buyer’s agent would receive 3%.
In other words, even if a low-commission agent charges a reduced rate, the buyer’s agent will still expect to receive their full fee. As a result, the seller may end up paying less to their listing agent, but will still be responsible for paying the full commission fee to the buyer’s agent. This is important to keep in mind when considering whether or not to work with a low-commission agent, as it may not necessarily result in significant cost savings in the long run.
Are Flat Fee Real Estate Brokers a Good Option?
Rather than charging a traditional, percentage based commission rate, flat fee brokers simply charge a flat fee to list a home on the multiple listing service (MLS). The rest of the process is typically left to the seller.
Flat-fee real estate brokers do not provide a comprehensive service like a typical real estate company. A seller only receives the benefit of exposure in the local MLS, although some flat-fee companies will provide a hybrid service that helps to schedule showings.
Understanding The Real Estate Commission Split
In a typical real estate transaction, a certain percentage of the sale price of the home is set aside as a commission fee for the real estate agents involved. If the commission rate is 5%, this is usually split evenly between the agent for the buyer and the agent for the seller. This means that both agents would receive a commission of 2.5% of the sale price.
However, when working with a discount broker, the commission split may not be as equitable as it should be. Sometimes, discount brokers offer sellers lower commission rates to list their homes but will grind on the buyer’s agents to reduce their commission fees. As a result, instead of a 2.5% to 3% commission to the buyer’s agent, that agent only receives 1.5% to 2% commission. While the buyer’s agent will always look out for the interest of the buyer, it certainly doesn’t light a fire under the agent.
It’s important to note that discounted commissions can come from any agent, regardless of the company they work for. Commissions are not fixed and can vary depending on the agents involved and the specific deal that is negotiated. Commissions can be negotiated, but it may not always be in the best interest of a seller to offer less money to a real estate agent.
In some cases, offering a lower commission fee can make experienced and qualified agents reluctant to represent a seller’s property because they may feel that the pay is not commensurate with the amount of work involved. So, it’s important for sellers to think carefully about the commission structure they offer and to work with experienced and trustworthy agents who can give the best service and support throughout the selling process.
Read more: Realtor vs Real Estate Agent vs Broker: What’s the Difference?
Are Low Commission Real Estate Agents Reputable?
There is often a common misconception that low-commission real estate agents are not as reputable as traditional agents. However, this is not necessarily true. Low-commission agents are required to meet the same licensure requirements and training as any other agent, and if they are members of the National Association of Realtors (NAR), they are also required to adhere to the association’s ethical standards. While some markets may have a higher concentration of discount commission agents than others, reputable agents can come from any commission structure.
Zach Walkerlieb, a Las Vegas real estate agent who sells homes 53% faster than the average agent, says that sellers can benefit from low-commission agents, depending on the price range and condition of the home. In a highly competitive market, offering a lower commission fee can help the seller save thousands of dollars.
Keep in mind that selling a home faster may result from listing homes slightly lower than fair market value, which may short change the seller.
Also, in a more balanced market where each home gets fewer offers, working with a top agent can make a big difference in maximizing the sale of the home, and the value added by such an agent can outweigh the savings of a lower commission. In the end, it’s important for sellers to carefully consider their options and work with an agent who has the experience and knowledge to give the best service and support throughout the selling process.
The Negative Consequences Of a Lower Real Estate Commission
Selling a home is a big decision, and most sellers want to walk away with as much money as possible. However, it’s important to remember that in real estate, you get what you pay for, just like with everything else. While low-commission real estate agents may seem like a great deal, there can be negative consequences associated with working with them.
The Dual Agency Dilemma
When working with low-commission real estate agents, it’s important to be aware of the risks of dual agency. When a real estate agent represents both the buyer and the seller in a deal, this is called “dual agency.” This practice is illegal in six states because of the potential risks of an agent not representing each side of the transaction fairly. While the dual agency is a risk even with a full commission agent, the incentive to double-end the deal grows when the agent is collecting so little on the sale in the first place.
One major concern with dual agency is that it can work against the seller’s best interests. For example, if a seller lists their $300,000 property with an agent who charges a 1.5% commission, the seller would pay $4,500 when the home sells. However, if the agent also represents the buyer, they would receive the 2.5%-3% buyer’s commission and could earn up to $13,500 in potential commission. This creates a potential conflict of interest for the agent, as they may be motivated to close the deal at any cost, even if it’s not in the best interests of the seller.
It’s important to remember that negotiations are a crucial part of any home sale, from necessary repairs to closing dates. When an agent is representing both the buyer and the seller, they may not be able to negotiate effectively on behalf of both parties, potentially leaving one or both at a disadvantage. Therefore, it’s crucial to choose an agent who is dedicated to representing your best interests as a seller and to avoid dual agency whenever possible. One way to do this is to work with an exclusive seller’s agent, who will be solely focused on representing your interests and negotiating the best deal for you.
Your Home May Sell For Less Money
When it comes to selling your home, working with a discount real estate agent can result in your home selling for less than it could have with the expertise of a top agent. There are several factors that can influence a home’s sale price, including strategic improvements, pricing it in the sweet spot, and leveraging a well-connected agent’s network. A top agent can provide guidance and negotiate effectively on your behalf, particularly during the sales process when negotiations are crucial. For example, a buyer may request repairs after the home inspection, and an experienced agent can navigate these negotiations to ensure the best outcome for the seller.
According to real estate experts, the ability to negotiate and provide guidance to keep the deal moving forward is crucial in today’s real estate market. In fact, every deal is considered “paper thin,” meaning that any misstep in the negotiation process can lead to a less favorable outcome for the seller. As a result, working with a top agent who has the skill set to create a win-win situation for all parties involved can make a significant difference in maximizing a home’s sale price and avoiding leaving money on the kitchen table.
In fact, data from real estate transactions support the idea that working with a low-rated agent can result in a lower sale price for your home. Therefore, it’s important to carefully consider your options and work with an experienced and reputable agent who can provide the necessary guidance and negotiation skills to ensure the best outcome for you as a seller.
Fewer Buyers May See Your Home
Another major disadvantage of working with a low-commission real estate agent is that fewer buyers may see your home. This can happen if the agent is not offering a fair commission split to the buyer’s agent, which can make the home less appealing to potential buyers. In addition, a low-commission agent may not have the same marketing resources as a top agent, which can limit the exposure of your home to potential buyers.
This can result in a longer time on the market and potentially lower sale price, as fewer potential buyers may see the home and be interested in making an offer. As a result, it’s important to work with an experienced and reputable agent who can provide the necessary marketing resources and fair commission split to incentivize buyer’s agents and attract potential buyers to your home.
Overpricing
It’s also important to note that overpricing a home can lead to extended days on the market, which can hinder the seller’s ability to get top dollar for their home. This is especially true when working with a low-commission agent because the pool of possible buyers may be smaller due to the inferior commission split.
To avoid these negative consequences, it’s important to work with an experienced and reputable agent who offers a fair commission split. It’s crucial not to discount the buyer’s agent, as this can result in fewer potential buyers and a longer time on the market. When signing an exclusive right-to-sell contract, ensure that any lower commission fee comes from the listing agent, rather than the buyer’s agent.
In conclusion, while it may seem like a good idea to work with a low-commission agent to save money, the potential negative consequences can outweigh any cost savings. It’s important to work with an agent who has the experience and expertise to provide the best service and support throughout the selling process, while also offering a fair commission split to incentivize the buyer’s agent and attract potential buyers to the home.
Read more: Pricing a Home For Sale: Don’t Make This Huge Mistake
Are You Really Saving Money With a Lower Real Estate Commission?
Many sellers believe that they can save money by choosing a real estate agent who offers a lower commission rate than other agents in their area. However, it’s important to understand that this approach can actually be counterproductive, as it may discourage buyer’s agents from showing your home to potential buyers. For example, If you list your home with an agent who charges a lower commission, such as 4%, but only offers a lower buyer’s agent fee, such as 2%, it may reduce the motivation of buyer’s agents to show your home to their clients.
This is because other homes on the market typically offer a 2.5% buyer’s agent commission, while a low commission agent may offer only 2%. This means that the buyer’s agent has less incentive to show their clients your home, and instead show them homes with higher commission rates. Consequently, your home may receive fewer showings and fewer offers, leading to a potentially lower sale price. It’s not exactly ethical, but it’s human nature.
In addition, offering a lower commission rate may signal to some agents that you are not willing to pay for the full range of services that a top agent can provide, potentially leading to additional challenges in the selling process. Therefore, it’s important to carefully consider your options and choose an experienced and reputable agent who can provide the necessary services and fair commission split to maximize your home’s sale price and attract potential buyers.
What Happens With Lower Real Estate Commissions?
Choosing a real estate agent who offers a lower commission rate may seem like a cost-saving measure at first glance, but it can have several negative consequences, including:
- Discouraging buyer’s agents from showing your home to potential buyers due to the lower commission offered, resulting in fewer showings and potentially fewer offers.
- Giving the impression to some agents that you are not willing to pay for the full range of services that a top agent can provide, leading to additional challenges in the selling process.
- Potentially leading to dual agency, where the same agent represents both the buyer and the seller, which can create conflicts of interest and risks of unfair representation.
- Agents may steer buyers away from your property in favor of properties offering higher commissions, potentially resulting in lower offers and longer time on the market.
- Agents may attempt to convince you to lower your asking price to facilitate a quick sale, rather than working to negotiate the best possible price for your property.
- Buyers may develop a negative impression of your property due to the lower commission offered, leading to longer time on the market and potentially lower sale prices.
- The overall impression created by offering a lower commission rate may signal to buyers and agents that you are not serious about selling your property, leading to a lack of interest and missed opportunities.
To avoid these negative consequences, it’s important to carefully consider your options and choose an experienced and reputable agent who can provide the necessary services and a fair commission split to maximize your home’s sale price and attract potential buyers.
Are You Compounding The Problem Hiring a Low Commission Realtor?
Choosing a low-commission Realtor could be bigger mistake than you think. A lower commission can ward off the rainmakers, the buyers’ agents. Moreover, to get the listing, your Realtor may have told you exactly what you want to hear, which is the promise of a lofty sales price.
Overpricing a property is perhaps the worst mistake you can make. The house can sit on the market for longer time period and sell for less than it should have.
The reality is that paying the standard commission to a top-producing Realtor is critical when selling your home. Hiring a Realtor who will list a home for any price and accept nearly any commission will not be a prize fighter.
Signing Off
Working with a low-commission Realtor may seem like a good way to save money, but it often leads to negative consequences, such as fewer buyers seeing your home, a lower sale price, and the risk of dual agency. It’s important to choose a reputable, experienced, and top-producing real estate agent who can provide you with the best service and maximize the value of your home. At Property Wonk, we understand the pain points that sellers may face when it comes to finding the right Bakersfield Realtor. That’s why we offer a platform that connects you with top-performing Realtors who have a proven track record of success. Our Realtors put the best interests of their clients first and offer commission rates that are competitive, while maintaining top-notch service.
