Can Realtor Fees Be Negotiated? Here’s What Homebuyers Need to Know
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Dave Stinton, Contributing AuthorClose
Dave Stinton Contributing AuthorDave Stinton is a writer and illustrator based in Chicago. His first home purchase was 15 years ago in the homey neighborhood of Albany Park, and he’s lived there ever since.
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Sam Dadofalza, Associate Refresh EditorClose
Sam Dadofalza Associate Refresh EditorSam Dadofalza is an associate refresh editor at HomeLight, where she crafts insightful stories to guide homebuyers and sellers through the intricacies of real estate transactions. She has previously contributed to digital marketing firms and online business publications, honing her skills in creating engaging and informative content.
A buyer’s agent is there to guide you through the entire homebuying process, from finding the right property to arranging viewings and negotiating the best deal. Naturally, these services come with a cost. But many buyers, especially first-timers, aren’t familiar with how agents get paid. You might even be asking yourself, “Can realtor fees be negotiated?”
Buying a home can be stressful — and expensive. It’s only natural to wonder if there’s any wiggle room on commissions so you can save some money.
In this article, we looked behind the curtain at real estate commissions and consulted Andretta Robinson, a northern Illinois real estate agent with 19 years of experience, to help walk you through the strategy and etiquette of negotiating agents’ fees as a buyer.
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First of all, yes, agent commissions can be negotiated
Regardless of whether an individual’s professional designation is a licensed real estate agent or a Realtor® (a licensed agent who is a member of the National Association of Realtors), most agents are paid through commissions, which are a percentage of a home’s sales price.
Historically, agent commissions ranged from 5% to 6% of the home’s sale price, split between the buyer’s and seller’s agents, with the seller typically covering both fees. However, the landmark NAR settlement decoupled these commissions.
Now, sellers are no longer required to pay the buyer’s agent fees, and buyers must negotiate directly with their agents. Still, many sellers choose to cover the buyer’s agent commission to help attract more offers or expedite the sale.
Despite the changes, in many markets, sellers continue to pay the buyer’s agent commissions. That said, buyers should still factor in the cost (usually around 3% of the home’s sale price) when budgeting and negotiating offers.
You may be wondering if there’s a standard percentage that goes to the commission. There isn’t one, as that would be price fixing, which is against the law.
What’s price fixing?
There’s a lot you want to make sure is fixed before you buy a home. Price is not one of them, at least with regard to commission fees. In fact, brokerages are forbidden from establishing set sales commission percentages.
Why the vagueness? Can’t brokers make it clear and easy by setting a standard percentage for their fees?
The Sherman Antitrust Act prohibits agreements that stifle competitive pricing. If agents on the seller’s and buyer’s sides set a standard rate, that would take away your ability, as a consumer, to negotiate and shop around for a more affordable experience.
The advantage of the antitrust policy is that it allows you some control over commission rates. The downside is that it may leave you in the dark as to what the first step is if you want to discuss fees. We’re here to help.
Why would a buyer negotiate fees?
Traditionally, the seller typically handled the agent fees and the associated negotiations. However, under the new rules, buyers are now expected to cover these fees themselves.
In many cases, this works to the buyer’s advantage, helping them edge out the competition. In some instances, agents themselves ask buyers to pay the fees. Robinson says she’s been in this situation.
“During the era of the foreclosure market and short sale market, which was in 2008, the price points for the homes were pretty low,” she says. (You may remember 2008 as not the happiest time in real estate history.)
Lower-priced homes mean lower agents’ fees, so in some cases, the home prices during that time fell so far that the fee dipped below a level Robinson was comfortable with. “I would go to the buyer and ask the buyer to cover the difference of the fee,” she says.
Regardless of the listing price, a home sale requires the same amount of skill and work from the agent. That’s important to remember when talking about commission. What homework does Robinson wish buyers did before entering price negotiations? It’s seeing the value agents bring to the home purchase transaction.
“If they don’t understand the value of what my services are, I will pull out my list of values, show them my hundred-point list of things that take place during a transaction, and usually when I finish with that, they understand why I’m asking for the commission.”
What does a buyer’s agent do?
What you see firsthand of the buyer’s agent’s job is merely a fraction of the work they do. They develop a deep familiarity with the neighborhoods, the markets, and the tastes and needs of the buyer before the two of you even set foot into a property.
“Let me tell you what my motto is,” quips Robinson. “My motto is, ‘A monkey can show you a house,’ ok? Take a monkey by the hand and make him show you a house — that’s not what our job is.”
In fact, the list of buyer’s agent responsibilities is quite extensive. Here are just a handful of what agents’ duties are for each home sale:
- Search the multiple listing service (MLS)
- Schedule showings
- Walk buyers through the homebuying process
- Write up offers and counteroffers
- Attend home inspections
- Help buyers at the closing table
When Robinson shares her list of values with a client, “I’ll just break down everything I do, from researching the properties that they want to view, to researching values, to researching neighborhoods, to researching — the research alone can take up 10 different items by itself, sometimes 20.” And a good deal of it goes on before the agent sees a penny.
In addition to the agent’s time, real estate commissions also cover many costs and fees, including:
- Marketing fees
- Insurance
- Taxes
- MLS fees
- Business licenses
- Professional dues
This absolutely does not mean you shouldn’t try to negotiate — you have nothing to lose by asking, or by walking away if you’re not satisfied. Just know what you’re asking for.
Other negotiation opportunities
Market research
Before you negotiate Realtor fees, it’s important to do your research and understand the local housing market. Sales prices and housing inventory levels can directly impact the amount of leverage you have for negotiations, as well as seasonal sales trends in your area.
It’s also essential to know what the average commission fee is in your area to make sure your ask is reasonable. Additionally, consider the years of experience an agent has, the types of services an agent offers, and the amount of time you’ll demand from your agent.
Buyer representation agreement
A buyer representation agreement is a contract signed between the buyer and the buyer’s agent, which forms an exclusive relationship between them. This may create an incentive for the agent to put more effort into helping you since the agent knows you’re not going to switch agents after they put in hours of hard work and research.
This is an opportunity for you to negotiate the fees and commission percentages before you even decide on a purchase.
Dual agency
One way you might save on fees is to use the same agent to represent the seller and the buyer. That way, there’s one agent instead of two, so the fee can potentially be lower.
This is called “dual agency,” but heads up: it’s controversial, to the point that at least one consumer advocate organization warns buyers and sellers never to agree to it.
While working with a single agent can help streamline the home sale process, the potential drawback is that the agent can earn twice the commission with half the incentive to help. If an agent is beholden to both sides of the transaction, they need to remain neutral and are prohibited from doing anything to the detriment of either party.
Dual agency with an unscrupulous agent could create a conflict of interest that can weigh hard on the buyer, the seller, or both.
Because of this potential conflict of interest, dual agency is actually prohibited in nine states. Meanwhile, in states where it’s allowed, clear, upfront disclosure of the dual agency relationship and express, written acknowledgment by all parties is generally required.
However, if you work with an experienced and ethical agent, dual agency can work to your advantage — all the more reason to do as much research as you can on agents before you decide on a particular one.
Discount brokerages
Some real estate brokerages specialize in low-cost, no-frills services. What’s the downside? It depends on what you consider to be a “frill.”
A low base rate from a discount brokerage can be a basic package that simply includes an MLS listing, but doesn’t include help with contracts, negotiations, closing, or any other aspect of the deal.
As with anything — real estate and otherwise — you get what you pay for.
Client referrals
If you have acquaintances who are also looking to buy a home, you might dangle them as referrals for your buyer’s agent. More clients for the agent means more opportunities to earn commissions, and your house-hunting friends might be an incentive for your agent to trim that fee.
Curious about how to navigate the tricky world of real estate negotiations? Read our expert guide to discover strategies that could help you secure a better deal on commissions.
The bottom line
Can you negotiate Realtor fees? Yes, it’s possible. In some situations, you may be off the hook for paying them directly when buying a house, but like every step in the real estate world, it’s worth exploring ways to save some money, as long as you keep your eyes open.
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