Tips and Traps When Negotiating Real Estate: Will You Get What You Pay For?

Negotiate the Commission: Will You Get What You Pay For?

At the onset, it’s important to keep track of what you want out of listing your house with an agent. While, of course, you want to pay as little as you can, on the other hand you also want to sell your property as soon as possible. It’s sort of like watching the donut and not the hole. What’s really important is selling the property. The agent’s fee is, or should be, subordinate to that, not the other way around.

Therefore, when you sit down with an agent to negotiate the fee, you should also be negotiating the service. One is dependent on the other. If you want a lower fee, then perhaps you’ll have to expect lesser service. On the other hand, if you get super service, you may need to pay a higher fee. You usually get what you pay for.

How Does the Agent See It?

I think it’s important to understand how agents see things. You might say this falls under the category of being informed and ques­tioning authority. If you don’t know what the agent has to do to sell your house, you can’t really talk price with him or her. You may have unrealistic expectations.

Real estate agents, despite what most people think, on average are not highly paid. Most agents make less than $45,000 a year, even active ones. (Of course, there are always some who make a million, but that really is more the exception than the rule.)

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Most active agents (as opposed to those who are part-timers and don’t really do much in the field) spend 50 or 60 hours a week, including nights and weekends, at work. They answer calls at all hours, often from their homes. They drive people whom they’ve often just met into all sorts of neighborhoods. And even when they finish the job and get a sale, they may be threatened with a lawsuit by an angry buyer or seller for something they (or, chances are, someone else) overlooked.

Further, they must pay for their own clothes (agents have to dress well); their car, including gas, maintenance, and insurance; and sometimes even their own office space and advertising. And on most deals they finally make, they must split the commission between a listing and selling office. If the agent is only a salesperson, the com­ mission must be further split between the salesperson and the bro­ker. (And there’s no salary—no deal, no income.)

No, I’m not an apologist for agents, though I may sound like one here. It’s just that I’ve been there and I know what it’s like. To sim­ ply say that an agent, a good one, doesn’t earn his or her commission is poppycock. To a seller, the agent’s work and expenses may not always be obvious. But rest assured, a lot of work and expense go into selling properties.

How Does the Buyer See It?

I’m sure you’re familiar with this situation. You’ve got a house worth $400,000. You want to sell it, and an agent waltzes in and asks for a 6 percent commission, a full $24,000. Chances are you owe $300,000 on the house, so the agent is asking for nearly a quarter of your $100,000 equity just to find a buyer! (If you owe more, the agent’s percentage of your equity is going to be even higher.)

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Further, the house just down the street sold for full price within two days of being listed. Just how much effort did that take on the part of the agent? It’s unconscionable, you say.

However, what are your choices? You could always sell the prop­erty yourself if you have the time, the patience, and the know-how.

Most people simply don’t want to do that. The fact is that about 85 to 90 percent of all residential real estate in most areas is sold through agents. When buyers want to see properties, they contact an agent. When sellers want to sell, they list with an agent.

So, as a seller, it now becomes a matter of negotiating the agent’s fee downward. The agent wants 6 percent; you want to pay 1 per­ cent. The agent wants to get a full commission because of his or her expenses, time, and so on. Your hope is to get the fee knocked down so you won’t be “throwing away” so much of your equity. The result, of course, is negotiation.


When you’re negotiating with an agent, remember that the agent’s choices are limited too. The agent has a choice of listing your property at whatever rate he or she ” can get or walking away. If the agent walks, time spent on you is wasted for him or her. Some agents, therefore, will ultimately accept any commission rate and then do noth­ing to sell the property. Their rationale is the following: If by chance it sells, they get something. If it doesn’t, they haven’t invested any more of their time. You want to avoid this sort of arrangement like the plague.