As a buyer, is asking a Realtor to reduce commission a good idea? Most buyers seem to think that they can get a better deal by forgoing buyer agent representation. After all, if there’s one less agent, there must be commission to spare to perhaps directly benefit the buyer right?
We’ll explain the many pitfalls of this line of thinking, why it’s not as easy as it sounds, and what you can do alternatively to earn some of the broker economics in a transaction.
Buyers typically think they can save money without a buyer’s agent by simply asking the listing (i.e. seller’s) agent to reduce their commission. After all, if the seller’s agent doesn’t have to split half the commission with a buyer’s agent, he or she must be able to share that good fortune with the buyer right?
Listing agents also like to feed this narrative by claiming that by not having to split the commission, there is more money to go around in the event that they need to step in to help “close the gap” between a buyer’s bid price and a seller’s ask price.
Predictably, a savvy buyer might think that the cleverest strategy is to bid conservatively without a buyer’s agent, and to force the seller’s agent to use his or her commission to help close the gap by an amount close to half the commission (i.e. what they would have split anyway had the buyer had an agent).
This strategy only works in a soft market
The problem with this strategy is that it only works in a buyer’s market where ideally you are the only bidder. If the seller has no other offers, then the listing agent may be desperate enough to reduce their commission in order to make a deal happen.
However, as soon as there is another potential offer in the works, you can bet that the listing agent will do everything in his or her power to shop your offer, and to especially encourage other direct buyers to beat your offer so they can keep all 6% of the commission.
Think about it, not only is there a monetary incentive, but a listing agent might be outright offended that you are trying to reduce their commission.
Furthermore, by having submitted an offer, you actually increase the chance that the listing agent is able to get another offer because of the increased competitive dynamic.
A listing agent may ignore your request altogether
Furthermore, in a seller’s market where a listing is getting a lot of traffic or offers, the listing agent may outright deny a buyer asking Realtor to reduce commission. The listing agent may simply say no, that’s too complicated, or that they can only submit offers based on price, etc.
Simply put, there is really no way of you forcing the listing agent to reduce their contractually agreed upon commission with the seller, nor do they have any obligation to reduce their commission simply because you chose to be unrepresented.
Pro Tip: The only way to contractually ensure that you will get some of the buyer agent commission is to sign up for a buyer agent commission rebate, which means your buyer’s agent signs a rebate agreement with you in advance of making any offers saying they will rebate you a certain portion of their commission.
There is typically no way for the buyer to verify that the seller is going to get a commission reduction when making an offer, despite any verbal assurances from the listing agent.
Furthermore, a sneaky listing agent will push back and say that they want to present your counter first and see how low the seller will go, before deploying his or her commission at the last moment to help close the gap.
As a result, even if you want the listing agent to offer to reduce his or her commission sooner, perhaps in order to get a deal locked in sooner, the listing agent is incentivized to hold out and see if the seller will naturally go lower first.
If the seller does go lower on price, then the listing agent won’t have to reduce his or her commission as much, or at all.
Zero verification of commission reduction in NYC
In markets like NYC where offers are typically submitted by email, and are wholly non-binding, it’s impossible for the buyer to verify what the commission will be since the listing agreement is a separate, private agreement.
Not that it will do the buyer any good to see the listing agreement, which the seller’s agent will almost definitely refuse to share due to confidentiality.
After all, the seller and the listing agent would need to sign a new agreement to reduce the commission, and if they do so, the seller will then be able to use this against the listing agent for all future scenarios. Why would the listing agent agree to that?
This is actually quite a serious issue for the listing agent, who must be pretty sure that the deal will get done if they agree to reduce their commission.
If the deal falls through, the next time a direct buyers comes by, the seller may proactively ask the listing agent to reduce their commission, thus destroying any chance of the listing agent earning all 6% going forward.
Verifying commission with offer contracts in Florida
It’s slightly easier to verify that the commission will be reduced in states like Florida where a standard “As Is Residential Contract for Sale and Purchase” is used, and there is a section for “Additional Terms” where you could potentially specify a reduced commission percentage with your counter-offer.
However, keep in mind that the same issues occur where the listing agent is incentivized to reduce their commission only at the last possible moment, and only if there isn’t another direct buyer offer they can work with.
If a listing agent specifies in the offer contract that they’re willing to reduce their commission, then you can bet that the seller will factor that in the next time they get an offer if it doesn’t work out with you.
Pro Tip: Are you buying a home in Miami or NYC? If so, estimate what your closings costs might be with our interactive Miami Buyer Closing Cost Calculator and our Buyer Closing Cost Calculator for NYC.
Asking your buyer’s agent to reduce his or her commission is one of the worst things that you can ask for, especially if this isn’t something they have agreed to before beginning your working relationship.
It’s akin to a client in any other industry asking you to take a salary pay cut so they can get a better deal on whatever your company is selling.
There are many reasons to say no
First of all, your request could be rejected for a whole host of reasons or excuses such as:
It’s illegal to give you a “kickback” on the commission. This is actually not true in New York, Florida and approximately 40 states as of this writing. Commission rebates are completely legal in New York and in Florida.
My brokerage won’t allow it. This is a valid excuse that’s almost impossible for a buyer to prove. Some brokerages may indeed have corporate policies against rebating and other types of discounting in order to protect their reputations or the pricing power of their other agents.
I can’t afford it. Some agents may simply pull out a sob story, and tell you about having to pay hospital bills for their mother or pet snake.
I promise to treat you after we close. Some agents will simply promise to take you out, or to treat you to a nice closing gift, after their commission check has cleared. Be wary, often times they’ll pull out the sob stories about not having any money left after they’ve gotten paid.
There’s not enough money to go around. The buyer’s agent may explain how they won’t have much left after a 50% commission split, and paying another 50% or so in federal, state and local taxes (i.e. in NYC). Or they might claim that the co-broke on this is low, though there’s often no way for you to confirm this yourself without MLS access.