How to Negotiate a Real Estate Agent’s Commission

When you are ready to buy a home, you will likely need to hire a real estate agent. The commission that the agent earns is typically 6% of the home’s purchase price. This can add up to a lot of money, especially when cash is tight due to debt or new homeowner expenses, so it’s a good idea to negotiate the commission if you can. Here are a few strategies for dealing with your agent before buying or selling a home.

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Know the market

To negotiate the commission, you need to have a good understanding of the market. What is the average commission in your area? What are the current market conditions? If the market is hot, your agent will typically have multiple properties they’re dealing with, so they may be willing to negotiate a little more than when the market is slow and home sales are down.

Have a realistic number in mind

Don’t go into the negotiation thinking that you can get the agent to work for free. Real estate agents usually only earn money when a sale is made, so they can’t fall back on hourly wages or a salary. In fact, most agents have trouble generating a steady income and will often resort to using something like the debt avalanche method to keep their heads above water while waiting for that next sale.

Knowing this can help you establish compromises that get you a better rate. If you can’t compromise, you should be prepared to walk away from the partnership and look for a new agent. Agents are professionals, and they won’t want to lose your business. That said, if you have a realistic number in mind and you’re willing to compromise so that they have fewer responsibilities and can focus on landing another client who makes up the difference, you should be able to get a good deal on their rate of commission.

Timing is everything

The best time to negotiate the commission is when the agent has just been hired or when the house is about to be listed. At this point, they’re probably feeling a lot of pressure to make a sale and may be more willing to negotiate to keep you as a client since a smaller percentage is better than nothing at all.

Ask for a better rate for repeat business

Getting a reduced commission for your repeat business will only work after the first sale. Nonetheless, if you’re able to refer new clients their way and are willing to work with them for your next home purchase or sale, you might be able to snag a lower rate on their commission.

However, you’ll need to keep the lines of communication open and ensure any client you send their way mentions that you referred them, so you get the credit. The best advertising is word of mouth, and if you can prove to be a helpful resource for your agent, you should be able to talk them down to a lower rate.

The bottom line

Real estate agents are crucial pieces of the home buying puzzle, but their commission can be expensive. Follow these simple steps, and you should be able to negotiate a lower commission rate from your real estate agent that’s fair for both of you.