How to negotiate with your real estate agent

Buying a home is expensive, from the initial down payment to closing costs, but negotiating a lower commission could make for more affordable mortgage payments.

Nationally, Americans pay about $100 billion in real estate commissions every year, and agents in the United States have some of the highest standard commissions in the world, according to the New York Times. Those commissions became the focus of much debate after the National Association of Realtors (NAR) settled a series of lawsuits earlier this year.

Before the court case, many full-service agents in Minnesota typically charged sellers a 5% to 6% commission paid to the listing broker, who split it among the various agents and brokerages involved in the deal.

You might be able to get a better deal now. But it also means you must negotiate how and how much you will pay a real estate agent, with a written representation agreement that lays out specifics.

Here are tips on making it work.

For some, the hardest step is asking the real estate agent about the fees.

Many people psych themselves out of negotiating, said Sharon Press, director of the Dispute Resolution Institute at Mitchell Hamline School of Law.

“We all negotiate every day of our lives,” Press said. “When we decided where to go do dinner with our partner, that’s a negotiation, or telling the kids it is bedtime, that’s a negotiation.”

But most people who ask find success.

Results from a LendingTree survey showed that while only 31% of homebuyers or sellers attempted to negotiate commission fees, 64% of those who asked successfully reduced the fees. The results, published in February, also showed that 36% of respondents said they didn’t know they could negotiate and would have tried if they’d known. About a third didn’t try negotiating commission fees because they thought they already had a fair rate.

Before asking about fees, it’s worth it to do your homework.

About 63% of Americans believe real estate agent fees of 3% and up are typical, which could explain why a low number of buyers and sellers are negotiating with their agents, according to the survey.

But it might be different in your city. Ask friends, family and neighbors how much they paid in commission fees to their agents, Press said. Doing that research can make all the difference when it comes to negotiating.

“If you’re new to a community, researching can be more challenging,” she said. “But also you can talk to different Realtors on the front end of creating the relationship and having the conversation.”

Another way people can negotiate a lower commission is to ask the agent to perform fewer services, Press said. For example, if a seller can find someone to perform staging throughout the house for a lower cost than the agent, that’s a change that can be spelled out in the contract.

But beware that people get what they pay for. Negotiating down a commission may come at the price of having less attention from an agent, especially agents who don’t make a salary and are paid through commission fees, Press said.

“You can negotiate to add in or take out services and figure out what makes sense for a higher or lower commission,” she said. “Maybe [the listing agent] is happy to have less of their time committed to you, too.”

For those on a tight budget, negotiating down the 6% commission can make a big difference on being able to afford monthly mortgage payments.

A standard commission rate of 5% on a $350,000 house would generate about $17,500 in agent fees. Scale that down to 3% and the client is looking at $10,500 in agent fees, according to a RedFin analysis. That means on a 30-year mortgage, a buyer could save $120 a month.

Ultimately, buyers and sellers should do the math before negotiating with their real estate agents, Press said. Hard-edged negotiations could hurt a friendly relationship with an agent, and buyers and sellers sometimes need to accept the cost of an experienced professional.

“Even if it sounds like a fair difference in money, spread out over a 30-year mortgage, it is smaller over time,” she said. She said you need to think about the cost of the services and how they might add up to the commission.

For sellers, the ultimate way to reach a zero percent commission is to do all the work themselves.

However, sellers need to make sure they can do all the work. According to a Zillow report, 11% of sellers did not use a real estate agent. Another 10% eventually turned to an agent for help.

If you don’t have an agent, you need to devote time to marketing and showing your house and maintaining relationships with buyers’ agents.

An agent also is an expert negotiator and could net a higher selling price that can offset the commission, according to the Zillow report. Plus, real estate is typically an agent’s fulltime job, so clients don’t have to worry about the logistics.

For buyers, an agent provides valuable real estate advice and also helps with paperwork.

According to the LendingTree study, about 65% of Americans believe a real estate agent is at least somewhat necessary when buying or selling.

“Maybe it’s an investment to be on good terms with someone who is going to negotiate on your behalf with the seller and their Realtor,” Press said. “You have to think ‘What is it that I want to accomplish here? Do I want to sour my relationship with my Realtor? Do I want to nickel-and-dime my Realtor or would I prefer for them to think I’m being generous and know they’ll put in that extra effort for me?”