Buying or selling a home is a momentous event that most people do just a few times in their lives, if they’re fortunate enough to do it at all. As such, the stakes are high — and the costs are, too.
While there’s no set commission rate that all real estate agents charge — that would be price fixing — the industry standard is for sellers to pay a 2.5 percent to 3 percent commission to their agent, and another 2.5 percent to 3 percent to the buyer’s agent, for a total of up to 6 percent in commissions. On a $500,000 home, that can add up to $30,000, paid by the seller.
That’s a lot of money. So is it possible to negotiate a more favorable arrangement with your agent, as either a buyer or a seller?
The short answer is yes. “As real estate professionals, we’re used to having conversations around compensation with our clients all the time,’’ said Kurt Thompson, broker/owner at Keller Williams Realty North Central in Leominster and president of the Massachusetts Association of Realtors. “A consumer will see a variety of different options in the marketplace.’’
Maybe not as much variety (or transparency) as you get in other consumer settings. But there are agents willing to be flexible, whether that means lowering their commission or adding extra services like professional staging or virtual tours. In fact, you should almost always be able to hold out for terms or an agent you’re happy with for one simple reason: There are an awful lot of real estate agents to choose from.
The quirky economics of the industry’s pay structure — specifically, that tantalizing prize of a five-figure commission per sale — attracts a lot of people to the real estate business. But in a market defined by a lack of inventory over the past several years, there are nearly as many agents as there are homes for sale. There are more than 60,000 licensed brokers and real estate agents in Massachusetts, and there were only 78,172 home sales statewide in 2019.
That dynamic appears to be putting downward pressure on real estate commissions over time. A Real Trends study found the average commission nationwide fell from 5.4 percent in 2012 to 5.08 percent in 2017, as more and more realtors competed for fewer and fewer listings, and as discount brokerages like Redfin gained market share.
“There was a time when 6 percent was standard. Now 5 percent is standard,’’ said Brian Dougherty, managing director at Compass in Boston. Dougherty said commissions are typically negotiable, but notes that some firms and their agents choose not to negotiate at all.
That raises an important point: Negotiating commissions or extra services is more likely to work with brokers or veteran agents who have enough sway in their offices. “You can try to negotiate, but you have to be mindful that it’s often not the agent’s decision,’’ said Sonia Gilbukh, assistant professor of real estate at City University of New York. While experienced agents will have more leeway, a brokerage will often dictate the commission rate — especially for newer agents.
Which brings us to a quick primer on the way real estate commissions get divvied up. The total commission isn’t just split between the seller’s agent and the buyer’s agent. “Each one of those agents will then have a split with the broker they’re working for,’’ Thompson said. Newer agents may have to pay as much as half of every commission to their brokerage — so out of a $20,000 commission, the listing agent might keep only $5,000 of it, Thompson said. “And that’s before they pay taxes or any of their expenses, including licensing, MLS [Multiple Listing Service] fees, the photos, videos, staging for the property, marketing materials.’’
That means some agents simply don’t have much room to come down, even if they wanted to, said realtor and 180 Relocation founder Lindy Chapman. While some modern brokerages charge agents only a flat fee per sale, new agents at traditional brokerages are often left with a small slice of the commission. “There’s nothing left for the buyer to negotiate in that fee,’’ she said.
A seasoned agent offers other benefits, too. “A realtor that has 20-plus years of experience is going to have a much deeper knowledge than someone who was licensed six months ago,’’ Thompson said. That translates into a better value for the consumer, given a realtor’s role as trusted adviser. “Really what you’re hiring a realtor to do is to advise and consult, to make sure that you have the right information you need at the right time to make an informed decision.’’
Negotiating as a buyer
As a buyer, Chapman said, it’s unwise to try negotiating your agent’s commission “if you need high-level service from an agent willing to sacrifice weekends and evenings to show you every home in town.’’ But you can negotiate it down in certain situations, she added. For example, if you’re purchasing a new-construction or million-dollar home, and did most or all of the legwork yourself, “then you should absolutely make sure you benefit from the commission,’’ she said.
Chapman said it’s best to set those terms from the outset in the buyer’s representation agreement, a contract that formalizes your business relationship — and also can be negotiated. “You can limit it to a specific date, area, ZIP code, the homes an agent shows,’’ Chapman said. “There’s nothing worse than feeling stuck with an agent with whom you have no rapport, so limiting the agreement to a day would give you an easy out if needed.’’
More important than commissions is determining where your agent’s loyalties lie, said Tom Wemett, broker/owner of Homebuyer Advisors in Orange. “Buyers spend hours searching for homes, but end up using the first or second agent they come in contact with,’’ he lamented.
Wemett, a founding member of the National Association of Exclusive Buyer Agents, advises working with a dedicated buyer’s agent who takes seriously his or her fiduciary duties — that is, the fundamental obligation to the client’s best interests. He especially cautions buyers against using an agent who works for the same brokerage as the listing agent. “Anytime a buyer or a seller gets into one of these transactions, they should ask for a reduced commission,’’ he said. While legal, Wemett added, the inherent conflict of interest doesn’t magically disappear. “They aren’t getting true fiduciary representation.’’
Negotiating as a seller
Sellers should likewise interview at least three agents, Chapman said. “Sellers are often shocked to receive very different listing prices, marketing strategies, and commission prices,’’ she said. Some agents might over-promise a high sales price to essentially “buy’’ the listing, she added, while discount agents might suggest a much lower listing price “to ensure the home will sell with as little work as possible.’’
If you invest money to make your agent’s job easier — say, by getting the home painted, the carpets professionally cleaned, or the yard landscaped — it’s not unreasonable to negotiate a commensurately lower commission, Chapman said. “I often told clients what needed to be done, and if they would do it, I would discount my fee according to the amount they were willing to invest,’’ she said.
Some brokerages have even formalized that approach, with a twist. Compass’s Concierge program, which debuted in 2019, fronts the cash necessary to refresh a home before a sale, whether that entails refinished hardwoods and a fresh coat of paint or landscaping and new bathroom tile. “A staged home sells faster, for more money, but sellers rarely want to spend the money to do any of this,’’ said Dougherty — so Compass will pay for the recommended work, getting reimbursed once the home is sold. William Raveis launched a similar program this month.
Dougherty and his team used the program to revitalize an outdated condo in the Back Bay, where buyers were having trouble seeing past the Formica countertops. “We refinished the floors, painted the entire condo, put all new stainless appliances in the kitchen, new marble counters, retiled the bathroom, put recessed lights in, window treatments, and staged it,’’ he said. “It cost about $20,000, and they ended up selling within a month of re-listing the property for more money than they imagined.’’
Another disruptive national brokerage, Redfin leverages technology to offer lower commissions — between 1 percent and 1.5 percent — to sellers and most buyers. “Technology has made computers, a gallon of gas, a stock trade, a hotel booking, or a long-distance telephone call radically less expensive. It can do the same when you sell your home,’’ said Glenn Kelman, Redfin’s chief executive. “It takes 1 million US real estate agents to sell 5 million homes every year only because agents spend much of their time looking for customers, when it’s much more efficient for the customers to look for us, on the Internet.’’
Thompson said lower-cost competition is good for the marketplace, since not all consumers require the same level of service. But he reminds clients of what they’re really paying for: the expertise and experience to see them through a long, sometimes very difficult process.
“I often tell sellers, the worst thing isn’t having your home not sell — the worst thing is thinking your home is sold, and then finding out a week from closing that it is not. That’s traumatic,’’ Thompson said. “A realtor who has the experience to understand what I call ‘issue avoidance’ — to know where the problems are going to pop up and how to either avoid them or make sure the consumer knows about them ahead of time — those are really the critical services that you’re hiring a realtor to do on your behalf.’’
Jon Gorey blogs about homes at HouseandHammer.com. Send comments to [email protected]. Follow him on Twitter at @jongorey. Subscribe to our free real estate newsletter at pages.email.bostonglobe.com/AddressSignUp.