Buying a house is already a rollercoaster of emotions and a long list of awkward to-do financial decisions. And thanks to some recent changes in laws affecting buyer agent commissions, there’s now one more annoying task added to your home-buying checklist: negotiating your agent’s commission.
Technically, agent commissions have always been “negotiable”. But have they really?… Every house I’ve ever bought (8 and counting) has all been purchased with commission rates that were fixed from the get-go, without me having a say at all. (And honestly, I didn’t care much to ask, because fees were always paid by the seller, not me).
But this new real estate commission rule — which took effect on August 17th, 2024 — shakes the game up a bit more and gives more transparency and power to the buyer.
And the good news is, from a buyer’s perspective there is more space to negotiate commissions and fees. This could lower the overall transaction cost of buying a house, saving you real money.
How it used to work:
Traditionally, realtor commissions are a percentage of the home’s sale price, typically split between the buyer’s agent and the seller’s agent.
Commissions usually ranged from 5% to 6% of the house sale price, and this percentage split was dictated by the seller (and paid for by the seller in most cases).
After the house finally sold and all the money was settled, both agents were then paid their commission split via escrow.
How it works now:
Instead of the seller determining how much commission both agents will split after the sale, now the buyer and seller are each responsible for negotiating their own agent’s commissions.
As a buyer, you and your agent come to an upfront agreement about exactly how much your agent should be compensated. You can either decide to pay them yourself directly, or request to have the seller cover the costs.
As for the commission amount, it can be a flat fee, a percentage of the purchase price, or whatever you want to negotiate. The old model was fixed. The new model is much more fluid, allowing you the opportunity to negotiate meaningful concessions.
Is this a good change, or bad?
OK, so you might be wondering, WHY are they making changes to commissions in the first place? Who benefits from this?
Well, the ultimate goal is to increase transparency in real estate transactions, particularly concerning buyer agent commissions. Buyers now have more insight and control over what they pay in fees and can negotiate fees directly.
Depending on how you look at it, this could be either a blessing or a curse:
Potential good things:
- Possible cheaper fees. If you can negotiate lower commissions, your overall cost to buy/sell a house comes down. Commissions are costly and this is a much-needed relief for buyers in the US right now.
- More transparency: Commissions are now negotiated out in the open, vs. behind closed doors.
- Fair value: Buyer’s agents will need to fully justify their value more, especially if they are asking for higher compensation.
Potential downsides:
- Possibly more expensive for buyers. Negotiation works both ways. It’s possible that this new format could cost some buyers more if they don’t approach this well.Â
- More paperwork. Agents aren’t going to work for free, so before they start performing tasks they’ll want to know exactly how much they are getting paid. This means more contracts upfront, and potential changes to contracts as you begin making offers.
- Uncomfortable conversations. It’s hard to negotiate fees, especially with a teammate! It’s uncomfortable negotiating with your agent because you want them to be paid well, but you also want to keep more of your hard-earned money. It’s a delicate balance.
The real estate commission rule change is brand new. So agents all over the country are still working out the smoothest process to make everyone happy.
It might be a while before standard practices are ironed out. In the meantime, it’s the Wild West out there. Use these tips to protect yourself!
Tips to negotiate as a buyer
OK, so what do new potential buyers need to do specifically? And how can they get the best deal when working with their agent?
Here are a few tips and thoughts on negotiating real estate commissions…
1. Don’t get pressured to sign anything you don’t want.
Never feel pressured into signing a contract. Ever.
Now that agent commissions are more open to negotiation, buyers have more power. Agents are the ones who have to fight for your business. (And trust me, there are PLENTY of agents out there to choose from).
Most realtors are very good at what they do. They live and breathe real estate, and are extremely knowledgeable about laws, contracts, and negotiating. But this can be intimidating for average folks! Especially newbies who are just getting their feet wet in real estate. It’s easy to shrug your shoulders and simply trust that agents know what they are talking about, which leads to blindly signing whatever they put in front of you.
But it’s crucial to read, question, and scrutinize the details. It never hurts to ask around, fact check things and take whatever time is needed to fully understand a contract before signing it.
2. Ask and learn
Before ever jumping straight into negotiations, it’s always good to understand what the other party is offering. So ask the realtor — “what are your fees and what do they include?”
Chances are they’ll already be prepared with standard answers. Agents provide a range of services, from finding suitable properties, educating you about the market and buying process, and even giving advice on how to get the right mortgage.
Not all agents offer the same level of service though. So make sure to understand exactly what your agent is going to do for you, and the commissions they want for their services.
You might learn that some agents offer reduced rates for fewer services. This could be great if you are comfortable handling some tasks on your own. More DIY can equal lower rates for you.
Here’s a list of typical responsibilities of buyer’s agents. Have a look and consider the activities they can help you with and which ones you feel comfortable tackling on your own.
3. Research and compare rates
Research the typical commission rates in your area. This will help you find out what is a good deal and what’s not. What rates have your friends, family, or neighbors recently paid!?
It’s also helpful to understand the national (and global) landscape too!
Real estate commissions in the USA are extremely high compared to other countries. Just check out this chart…
But things are certainly changing here in the USA!
As housing prices have risen, commissions have simultaneously increased, making each and every real estate transaction more expensive. The stakes are high and consumers are keen to save wherever they can on one of the most important purchases of their lives.
New technologies are making a big splash, undercutting the traditional commission structure by a LOT. For example, Redfin is offering agent services for as little as 1% of the home purchase price. This is a massive savings compared to the traditional 2-3% for agents.
Since most home shoppers use tools like Zillow, Redfin, etc. to find listings and run their own market comparisons, less hands-on help is typically needed from buyer agents.
All in all, don’t just settle with the realtor that your friend recommends. That lack of curiosity could end up costing you. There are a ton of agents who can represent you – shop around!
4. Consider a flat fee commission
Some agents offer flat fee services instead of a percentage-based commission. This can be a cost-effective option if you have a clear idea of what you need from an agent.
It also eases your concern if your property search begins to widen into more expensive houses. You won’t have to worry about paying more in fees just because you encounter a higher asking price.
Here’s an example of how flat fees can work in your favor…
| House Price | 3% Commission | 2% Commission | Flat Fee |
|---|---|---|---|
| $500,000 | $15,000 | $10,000 | $10,000 |
| $550,000 | $16,500 | $11,000 | $10,000 |
| $600,000 | $18,000 | $12,000 | $10,000 |
| $650,000 | $19,500 | $13,000 | $10,000 |
| $700,000 | $21,000 | $14,000 | $10,000 |
As much as I like this structure, I must be honest… Wouldn’t it be nice to pay your realtor MORE if they were able to negotiate a lower purchase price? That incentive structure makes sense to me!
5. Compare experience, expertise, and read reviews
Back in the day, real estate agents were mostly referred by word of mouth. If you trusted the person who referred you, you could trust the agent.
But these days, looking up online reviews and speaking with multiple references is the norm. You’ll want to dig up as much information as you can on your agent’s experience and expertise.
If you find 3 different agents that are all charging a 2% fee for their services (and there’s no room for negotiating), then it all comes down to comparing experience. You’ll want the one that you feel can represent you the absolute best and hand-hold you through the entire process.
Personally, I only want to work with the best of the best – even if it costs me a little more in commission. There’s a difference between good real estate agents and GREAT agents. My recommendation is to find a great agent. What they cost in extra commission might save you much more in good tips, advice, and avoiding headaches. My 2 cents!
6. Negotiate based on market conditions:
In a buyer’s market, agents may be more willing to negotiate their commissions due to increased competition.
Conversely, in a seller’s market, it might be more challenging to negotiate lower rates. Don’t get down on yourself if you can’t negotiate a lower commission. It’s always worth advocating for yourself even when the answer is no.
Market demand isn’t just a national thing. It’s important to know what’s going on locally in the area you are buying. Don’t just assume it’s a buyers or sellers market based on what you read in the headlines.
7. Short-term contracts (or property specific)
Traditionally, when you’re searching for a home to buy, you’ll sign a contract with an agent for X amount of days. They don’t want to put in a bunch of leg work, only to have you switch agents at the last second.
But, you’ve gotta be careful of the contract length. If you sign with an agent for 6 months but realize after only 3 months that they aren’t working very hard to find you a place, then you’re stuck with them for the remainder of the contract.
As a buyer, the shorter the contract the better. This gives you more flexibility should the relationship not work out.
You can always extend contracts, or renegotiate them.
Another idea is to sign property-specific contracts. If you already have 4-5 properties that you are set on checking out, you could find an agent to represent you for those properties only. That way, if you later on find a property outside of those original ones, you can consider another agent who may be cheaper.
Remember, you always want to negotiate in good faith. Buyer agents are ON YOUR SIDE when it comes to finding a house and executing the purchase. Be good to them and they will be good to you.
8. Lower commission, lower purchase price
It’s tempting to think, “why should I negotiate a lower commission for my agent when the seller is the one that pays for their fee anyway!?”
Well, think about it this way. It’s not just you who wants to save the most on fees. The seller of the house also wants to pay less in commissions.
So if you can put in an offer with a lower agent commission than other bidders, you have a competitive advantage. It could even mean you securing a lower purchase price for the house.
For example: Let’s say you and 5 other people all put in offers for the same house. All the offers are for $600,000.
In your offer, the buyer’s agent will receive a flat fee of $10,000 commission – something you pre-negotiated in advance. But the other 5 offers are using a standard 3% commission structure ($18,000).
In this scenario, the seller would likely favor your offer, because your agent commission is far lower. They could save themselves $8,000 in fees (you could even negotiate a slightly lower purchase price and some of those savings could be passed on to you.)
9. Ask for additional services
Keep in mind, it’s not always about the money. Think outside the box when you are negotiating.
If you’re talking to a realtor who won’t budge on commission percentage, maybe there are other noteworthy services that you could negotiate in your favor.
For example, let’s say you are selling your home and the realtor is firm on their 3% fee. You could try and negotiate videography of the home for no additional fee. It’s a small concession for the agent, but something that can save you money and really make your listing stand out.
10. Discounts for multiple transactions
If you are buying AND selling a home, there might be more room to negotiate agent fees too.
Or if you are a real estate investor looking to pick up multiple properties in the same area, you could sign a long-term contract with lower agent fees.
Working with the same agent on multiple transactions is easier for both parties. More transactions = more willingness to earn a little bit less on each one. With less work on their end, they should be more open to discounted fees.
The Bottom Line:
The world of realtor commissions is becoming more complex. But that’s actually a good thing because it leaves room for more negotiation and competition in the industry. Depending on how you negotiate, you’ll save a lot on fees and transaction costs of buying (or selling) a house.
Open and honest communication is paramount. Buying a house is a ridiculously hard process with lots of moving pieces. Working with a great agent can make all the difference. Just make sure you pay attention to the commissions you are forking over. It could potentially mean thousands of dollars kept in your pocket.
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